Many different graphs are used in technical analysis. Every trader uses the options that are more convenient for him. Next three types of charts are recognized as the most popular:
What is each graph and how to read them, we’ll look at later?
As the name implies, the linear graph is represented by lines drawn through the set of points. Each point expresses the closing price of one trading period. Exploring line graph, you can trace the price movement trend over a certain period of time. This is the simplest form of charts, but at the same time, it’s the least informative also.
This graphs are more complicated. He is represented not by lines, but by vertical stripes (bar) with two strokes on both sides of the bars. Each bar reflects trading for a certain period of time (hour, day, week). It shows the closing, opening prices, as well as the minimum and maximum prices per session. The lower part of the bar indicates the lowest price of the session, top part shows the highest price. The left and right strokes reflect the closing and the opening price, respectively. The vertical bar itself shows the trading range of the currency pair in general.
Japanese Candlestick Chart
Candlestick charts show the same information as in the bar chart, but in a beautiful, graphical format. A candle is a rectangle that has the branches at the top and bottom (shadow of the candle). The larger a rectangle, the greater the range between the prices of opening and closing. The upper part of the rectangle represents the open price, the lower part shows the closing price. The lower shadow of the candle is a low of trades; top shadow is a max of trades.
The candles on the chart are painted in two different colors. Traditional traders use black and white, but some traders prefer red and green colors of candles. Black (red) color of the candle means that the closing price was lower than the opening price. They are called bearish candles, as the bears play for fall. White or green bearish candle appears on the chart when the closing price was higher than the opening price.
Candlestick charts allow you to predict when a reversal of the trend will happen. The size of candles and shadows can tell you who is currently stronger in the market – bulls or bears. If you see a long bullish candle (white or green), in this period, the buyers were more strong than sellers. When several long bullish candles that go out for each other present on the chart, we can assume that soon a trend reversal will be because likely the bulls have exhausted already and bears are ready to take the initiative.