TYPES OF CHART ANALYSIS IN TECHNICAL ANALYSIS
Chart analysis is a prominent step for trading in technical analysis. Charts are graphical representation of price and time. Although they are different types of chart analysis, let’s look some of the popular chart analysis used in the world. Time is an important factor in chart analysis. It is usually displayed on the x-axis and price on the Y-axis. Time is an important factor that is measured in month, week, day, minutes, or few seconds. The chart becomes detailed with short time duration. The best point of time in technical analysis is that the like concepts apply to charts irrespective of time-frames of analysis. The success rate of individual patterns or indicators- based decisions may differ due to time frame. In general, higher the time frame of the chart increases the probability of any concept in the market.
LINE CHART
Line chart is one of the simplest charts with only few data points connected by a line. It gives a clear and simple representation of historic price movement of an asset. In contrast to bar and candlestick, line chart only display the closing price of an asset over time. The line chart is an easy representation of patterns that are easy to spot. Nevertheless, due to its simplicity, one can miss few important price movements that occur between opening and closing of each point.
BAR CHART
Unlike line chart, bar chart displays the opening and closing prices with the highs and lows for each period. Due to this they are called as HLOC charts, because it displays the high, Low, Open and Close. The top point of each bar shows the highest traded price during that time, whereas the bottom specifies the lowest. The horizontal notch towards the left is the opening price, and the right notch is the closed one. At the most bar charts are black and white, but they can also be represented in colors.
CANDLE STICK CHART
It is an identical representation of bar chart but represents the information slightly different. The body of the candle signifies the open to close range. The high or low range is a wick. The color displays as to price increment or decrement. Initially candlestick charts were in black and white, but now many charting platforms use red and green.
- 1. A Red (or black) body shows a period in which the price has reduced.
- 2. A Green (or white) body shows a period in which the price has been shoot-up.
Candlesticks are popularly used by the traders, as it conveys the huge amount of data quickly, easy to look at and have a better format. The shape of each candle stick gives you the clues at the balance between buying and selling in the market.
RENKO CHART
SIt is a charting technique that merely focuses on price movements, with no account of time and usage of volumes. It comprises of green and red bricks. These are placed depending upon the price increase or decrease with the previous brick. If it did enough value, started by brick size, a new one is placed. Green bricks are used as bricks as the price of the security surges and red bricks as they go down.
It is needed to know that the new brick is placed only under certain volatility criteria resulting in either a major pros or cons for trader. Depending upon the market conditions it can be placed in minutes or take more than a day depending upon the market conditions. In the first instance it may be advantageous when the traders who wish to identify supports and resistance in simple way, and in the final instance this can make market sentiment hard to consider. Consequently, leaving other analysis tools baseless.
HEIKIN ASHI CHARTS
Heikin Ashi is a Japanese trading chart akin to candlestick charts wherein the candlestick denotes the direction of price movement. Heikin stands for average, and Ashi stands for pace. Hence, it is a candle that is average paced. The uptrend and downtrend clearly. A strong uptrend is showed by continuous green Heikin Ashi candles with lower shadows. And the strong downtrend exists when there are a continuous red HA candles without the upper shadow.
Heike chart and candle charts are similar with a difference that HA charts average price moves, creating a better appearance. HA price bars don’t show the exact open and close prices for a particular time limit because of their average price. Heikin Ashi can be used by swing traders or investors independently .Day traders most of the time tend to use HEIKIN ASHI charts as an indicator.
POINT AND FIGURE CHARTS
It is one of the least popular charts used among the average investor .Earlier it was used by first technical traders. It is simple yet focuses only on the significant price moves, while filtering out “noise”. The chart features columns of X’s and O’s representing filtered price movements. X columns for rising prices and O columns for falling .Each price box must show a particular value that price should reach to warrant an X or an O. Time isn't a constrain in charting. No movements in price represents any change in the P&F chart. The point and figure charts are simplified drawing trend lines, and support and resistance levels, that’s the reason P&F charts are ideal for detecting trends, and understanding support and resistance levels
TO SUM UP
These charts determine traders and investors to analyze price and volatility in different time frames. The above charts depends on the type of trader you are and strategies that you prefer to put into practice. It’s a plus point to have knowledge of all the chart analysis for the security behavior.