TYPES OF CHART IN TECHNICAL ANALYSIS
There are four types of charts that are used by investors and traders to gather information according to their goals. These types of charts are:
- Line charts
- Bar charts
- Candlestick charts
Line charts are the most simple and basic type of charts as it is easier to read this chart and identify current trends. Line charts show the closing prices of the given period and a line is formed by joining one closing price to the following closing price over the specific period. However, this chart does not show many details like bar and other charts, but investors or traders consider closing prices important than open, high or low price and hence this chart serves as a beneficial chart for investing decisions.
Bar charts provide more information than line charts. Bar charts add the open, high, low and close prices or the daily price range. These charts are represented by a series of vertical lines that show the price range for a given period along with horizontal dash on each side that indicates open and closing prices. The opening price is shown on the left side with a horizontal dash and the closing price on the right side. The line turns the black color when the opening price is lower than the closing price, showing a rising trend. On the other hand, the opposite situation is falling trend which is shown in red color.
Candlestick charts were initiated in Japan over 300 years ago, and still are famous among traders and investors. Candlestick charts have a thin vertical line as shown in bar charts, to indicate the price range for the given period. The difference between the opening and closing prices is shown by a wider bar or a rectangle. However, the wider gap or rectangle will be missing on days when opening and closing prices are same. The price trends are shown in different colours.
- Red or black candlestick colour represents decreasing prices.
- White or clear candlestick colours show increasing prices.
This pattern indicates that sellers that are shown in Black are in control in the time period on the left but are unable to make any extreme moves (as shown by the small candle). Afterward, on the next time period, a much larger emergence takes place when a bullish white candle engulfs the Black candle with its entire body. This indicates a bull trend and that bulls are in control and show upward pricing trend. In the opposite scenario, bearish candle engulfs bullish candle.
The Hammer shows a bullish reversal pattern, providing a signal that a stock is nearing a bottom in a downtrend. In this pattern, sellers drive prices lower during the trading session as the body of the candle is short with a longer lower shadow. This is accompanied by a strong buying pressure, ending the session on a higher close. The upward trend needs to be observed for the few days to confirm the bullish reversal trend. Then the reversal is validated by the rise in the volume of trade.
The piercing line
The piercing line is a two candle bullish reversal pattern, happening in the downtrend. The first long black candle is followed by a white candle that opens lower than the previous close. Afterward, the buying pressure makes the price rise halfway or more ( two-thirds of the way) into the real body of the black candle.
The morning star
The morning start tends to show a new beginning after a downtrend. This pattern involves three candles, one short known as doji, which is in between the preceding long black candle and a succedding long white candle. The colour of a short candle can be black or white. This shows that selling pressure is now subsiding. Buyer pressure or bullish reversal trend is shown by the overlap done by the third candle with the black candle.