Types of charts commonly used in technical analysis when trading U.S. stocks
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The chart is a significant factor in determining price movements for US stock investors who follow the school of technical analysis. Different chart types have their characteristics and are used for specific strategies. Therefore, choosing the exemplary chart will help you maximize your trading strategy. In this lesson, we will provide you with stock investors’ four most popular chart types.
The four most commonly used chart types in technical analysis are:
- Candlestick chart
- Bar chart (Bar chart)
- Line chart (Line chart)
- Area Chart (Mountain Chart)
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Candlestick chart is a financial chart that describes the price movements of financial products.
The candlestick chart is the most widely used of the chart types because of its superiority over other patterns. Using candlestick charts helps to represent price levels more intuitively.
In the candlestick chart, each candle will represent four different information, including opening price/closing and high/low prices.
Each candle represents the price in a period corresponding to the chart time frame.
For example, The chart is in the 1G frame, and each candle represents the price of one hour.
A candlestick consists of 2 parts that represent price movements at a given time:
- Candle body: Shows the range between the opening and closing prices
- Candle Shadow: Shows the highest price (highest point of the candle shadow) and low price (the lowest point of the candle shadow)
The red candle represents the bearishness of that session. Conversely, a green candle indicates a price increase.
A bar chart is a chart that reflects the price movement of a financial instrument, where the top of the vertical line indicates the highest price during the trading session and the bottom of the vertical line indicates the lowest price in the period session. The small horizontal bar on the left represents the opening price, and the small flat bar on the right represents the closing price.
A single bar represents a trading session, be it a day, a week, an hour, etc. When you hear about “bar histograms,” you need to know the time frame. will know how much time that 1 bar represents
A bar chart is also known as an “OHLC” chart because it shows the price of a particular product’s Open, High – High, Low – Low, and Close – Close.
A line chart connects the closing prices of the previous timeframe with the closing prices of the following timeframe. When these points are connected, we get an overview of a currency pair’s price movement over time.
Line charts are created by splicing a series of historical price data together with an interstitial line. Since this chart only tracks the closing price of a financial instrument over a specified time frame, the advantage of this chart type is its ease of use.
In fact, in the trading market today, due to the development of science and technology, the movements of the financial market are increasingly complicated, so this type of chart is less used than before.
A mountain chart is a financial chart that ties the closing prices of trading sessions together, making it look like the ridge of a mountain.
A mountain chart is essentially the same as a line chart, but the space below the line is colored. People also often refer to them as area charts.
A mountain chart has several primary uses: it depicts the growth of an investment over time – this is a popular way to show past performance. In addition, this chart is also used as a trading tool to analyze price behavior. However, traders need to be careful as this type of chart can create an optical illusion of more significant growth than it is.
Above are the five most basic chart types and how to read each chart type’s parameters. Thus, looking at a particular stock chart, you will understand how the price on the graph represents and how it moves. You can quickly get a better market view and make more accurate trading decisions. With that feature, we can say that the chart is the guide for the technical analysis of stock traders.
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