Technical Analysis Types Of Charts

Part 8.2 Technical Analysis. Types of Charts
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This mini-blog is part 2 of our Introduction to Technical Analysis unit which forms part of our free introductory course in financial trading. This mini-blog consists of the following:

Types Of Chart

There are different ways of representing price action on a chart. This is due to the fact that in each time period on a chart, there are four prices that can be charted: 

  • Open price: the price at the start of that time period
  • High & Low price: the high and low of that time period
  • Close price: the price at the end of that time period

There are three main chart types: Line, Bar and Candlestick. And now let’s look at all of them in more detail.

Line Charts:

This is the simplest form of chart. These only use closing price and a line is drawn between each time period’s closing price to form a simple line on the chart. 

The simplicity of these charts can be useful to have a clearer view of the trend or to identify some patterns for beginners. The downside is that they don’t give a full picture of price movement within a period.

Line Charts A Simple Representation Of Close Prices

Bar Charts:

Bar charts map all four prices in a vertical line for each time period but unlike the line chart these do not link to each other across time periods. Bar charts give all the available price information for a time period but as such can seem a bit more complex than line charts.

Bar Chart Example

The whole length of the vertical bar represents the trading range from low to high. Small horizontal dashes off the vertical line are used to represent the opening and closing prices.

The Bar Chart Candle Elements

Candlestick Charts

Candlestick charts display all the same information as bar charts but display it in a way that many people find more visually appealing and also make use of contrasting colours.

As you can see here these are also plotted as individual elements in each time period. A single vertical line is still used to show the range of price action for a period between the high and the low.

Candlestick Charts Have Bodies, Wicks And Contrasting Colours

The range between the open and close price is displayed with horizontal lines that are joined to form what is called the ‘real body’. The parts of the vertical lines that are outside the real body are called the upper and lower shadow.

The final element that makes these more visually appealing and easier to read is the use of contrasting colours to show whether the close price is higher than the open price (bullish candle) or the close price is lower than the open price (bearish candle). The colours that are used can vary but are most commonly green and red or white (or unfilled) and black (filled).

Bullish And Bearish Candlesticks

These candles are often referred to as Japanese Candlesticks as they were developed by Munehisa Homma, a Japanese rice trader. These were introduced into the US and to western traders by technical analyst Steve Nison through his book “Japanese Candlestick Charting Techniques” and has since become one of the most popular technical analysis tools.

Justina Nothard

Justina Nothard

Hi, I’m Justina Nothard, a retail investor trading Stock Index Futures.

I understand how hard it can be for the ordinary trader to learn the basics and find useful tools and practical information.

This is why I decided to create Nothard Trading to help you take control of your trading.

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