Different chart types used in technical analysis and how to read them

Traders use various kinds of charts for technical analysis. In this, however, we will cover the most significant ones that give deeper insights. These are basic charts, but without the in-depth knowledge of the basic techniques and structures, further expertise in chart-reading is unlikely. Over the years, several other charts like Point and Figure charts, Kagi charts, and Renko charts have been developed, yet the significance of basic charts remains intact.  

The three basic charts are: Line charts, Bar charts, and candlestick charts.

Line Charts

Most technical analysts prefer to look at closing prices for a better confirmation. Line chart is plotted on the closing price which exhibits a clear line trend. The ideal charts indicate a perfect view through various technical patterns like Head and Shoulder, Double Top, Triple Top support and resistance. Line charts are very significant in identifying breakout and breakdown on the neckline. As the price is focused on the closing basis, it assists in eliminating the volatility in intraday sessions.

Whenever a closing basis price is broken decisively, the trend is said to have gained momentum in the respective course. During day trading, one may see stop loss getting triggered, but later the same price starts showing a strong reversal. Focusing on closing basis stop loss instead can provide various opportunities. CLICK HERE TO SEE THE CHART

Candlestick charts

The Japanese candlestick charts are the oldest form of technical analysis. This format represents the price in 'OHLC' pattern, where 'O' is Open, 'H' is High, 'L' is low and 'C' is close. This phenomenon tries to show the market scenario in terms of traders’ sentiment, support and resistance, buying momentum, selling pressure, and a trend. Herein, the price itself can predict the future trend on its own. Various candlestick pattern like Bullish Engulfing, Bearish Engulfing, Morning star, Evening star, Doji, Hammer, Inverted Hammer, etc can indicate the emerging trend.

The significant highs or lows facilitate in determining the resistance and support areas. A green candle represents a positive sentiment, whereas a red candle shows a weak sentiment. With candles like doji and hammer, one can easily identify the rebound and reversal points. CLICK HERE TO SEE THE CHART

Bar charts

Bar charts are similar to candlestick charts, however, the representation is in Bar format. Herein, a horizontal tick on the left shows the open price and on the right indicates a closing price. The big difference between a bar chart and a candlestick chart is the structure itself. Bar chart depicts the trading session based on the previous close, whereas candlestick charts show the intraday movement.

In bar charts, if the current session closes above the previous close, then it will indicate a green bar, whereas in the candlestick chart if the session closed above the previous close but the current session open is above the current close, it will still show a red candle. CLICK HERE TO SEE THE CHART