I imagine that you have already opened a demo account with a broker and have noticed that you can select different types of charts. The three most common types are:
- Line charts
- Bar charts
- Japanese Candlestick Charts
Let’s see a description of each one:
This type of graph represents the union line between the closing prices of a certain period of time. For example, a line chart of M15 (15 minutes) will show a line connecting the final prices of every 15 minutes (period closing price).
The bar chart, unlike the line chart, shows the price movement throughout the period, opening price, closing price, high and low. The bar is represented by a vertical line and two perpendicular horizontal lines. The high of the bar is the maximum price reached in the period while the low point represents the minimum price. The two horizontal lines are arranged one on the right and one on the left. The one on the left side represents the opening price and the one on the right side of the closing price.
Therefore, a bar represents a segment of time and the route made by the price as well as the range of movement in that time, providing more information than a simple line.
A bullish bar, opening price lower than the closing price, will have the horizontal line on the left located lower than the horizontal line on the right. And the opposite of a bearish bar.
Japanese Candle Graphics
A candlestick chart shows the same information as a bar chart but with a much better graphical style, in my opinion. Normally you will hear about candles as “Japanese candles”, as this is where these types of charts were born.
A candle contains the high, low, open price and close price of a given period of time. The area between the opening and closing price is represented by a block called the “body”. The body of a candle is represented empty if the opening price is lower than the closing price (bullish) and full if the opening price is higher than the closing price (bearish candle). In general, if the background of the chart is white, you will see a white body on a bullish candle and a black body on a bearish candle, although most chart analysis software allows customization of the color of the candle body.
Lines below or above the closing / opening prices are called shadows.
Candlestick charts are the most used of the three types, mainly because, even presenting the same information as bar charts, they are much easier to read visually and, in addition, there is a range of chart patterns based on Japanese candles very studied and widespread. So soon you will get used to them as part of the day to day and you may even forget about the rest of the types of graphics.