Types of Charts in Technical Analysis

Charts represent one of the major tools of technical analysis. They are being constructed by using the coordinates price, which is placed on the vertical axis, and time, which is placed on the horizontal axis.

There are several types of prices that are used on the forex market and are placed on technical analysis charts:

1. Open price - this is the price which is prevalent in the beginning of the trade period. The latter can be either a year, month, week, day, hour, minute or any amount of these.
2. Close price - this is the price which is prevalent at the end of the trade period.
3. High price - this is the price which is of the highest amount during a period under consideration.
4. Low price - this is the price which is of the lowest amount during a period under consideration.

When a forex trader applies technical analysis, s/he plots charts for different time period, lasting from one year or more until one minute. When a longer time unit is used for plotting a chart, the time span used for analyzing price changes is increased. Additionally, a longer time span is applied for the purpose of determining the major trend. If the forex trader is applying short trading, then s/he should use shorter time units.

The following is a list of types of charts that are usually used when doing technical analysis.

1. Line Charts

   The prices at a particular time period are plotted and then they are connected with lines. The daily chart represents the most widely used line chart. Forex traders tend to concentrate on the closing price plotted on a chart, because they regard it as the most important one, despite the fact that any point in the day can be presented.

   However, as a drawback of daily charts is considered the inability to see the price activity for the rest of the period. Additionally, they don't reflect any gaps in prices at the joints of the trade periods under consideration. Despite these drawbacks, daily charts are useful for visualizing price changes and for executing different models and techniques.

2. Bar Charts

   Histograms represent the separate parts of bar charts. One vertical bar presents the high, low, open and close prices for the period under consideration so that a histogram can be plotted on the price-time coordinates. To the left of the bar a little horizontal line should be placed to mark the opening price. On the other hand, to the right of the bar a little horizontal line should be placed to mark the closing price.

   Bar charts are beneficial since they provide the ability to view the currency range for the time period under consideration. Additionally, it presents any price gaps that occur. However, a bar chart drawback is that forex traders are unable to view all price changes during the time period under consideration.

3. Candlestick Charts

   Closely related to the bar charts, candlestick charts also include four main prices, which are high, low, open, and close. Candlestick charts possess some extra interpretations in addition to the general ones.

   The body of a candlestick is formed by the opening and the closing price. Whether the opening price was lower or higher than the closing one is indicated by the body's filling. The weekly movement depicted on a candlestick chart can be followed by using the so called shadows. They can be upper shadows and lower shadows. A drawback of candlestick charts is their inability to depict all price changes during the time period under consideration.

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