Hello there, this is tradingpedia.com and in this video we will discuss the different types of trading charts. This is the MetaTrader4 platform, and the types of trading charts we will cover can be found on any trading platform, this being the most popular trading platform for the retail traders.
Roughly, there are three types of candlestick charts to consider – candlesticks charts, line charts and bar charts. From these charts, there are deviations, depending on how complex your analysis is. You can find the three types on the MetaTrader4 right here. If you switch between these buttons, the chart will change its composition – we will do that in a minute.
Right now it is important to remember that the candlesticks chart is the most used among retail traders as candlesticks replaced bar charts used at the start of technical analysis. Japanese candlesticks techniques and the concept of a candlestick were introduced in the late 90s when Steve Nison wrote a book about his discoveries related to the Japanese technical analysis.
As it turned out, the Japanese used technical concepts to chart the price of the rice market way back in the 1700s and much earlier than the start of the stock market in the United States. That is considered the beginning of technical analysis.
Anyways, coming back to charts, a candlesticks chart shows the opening and closing prices for each period. This is the daily chart on the EURUSD pair, showing the current quotation and the open candlestick. See here this small, red candlestick. Let me zoom in so that you can see it better – this one right here.
Each candlestick shows the opening and closing prices of the previous periods and it has three components. One component is the real body, which represents the difference between the opening and closing prices. This is a bullish real body, because it has a higher closing price than the opening one and this is a bearish candlestick because it has a lower closing price when compared to the opening price and so on.
Each candlestick has an upper shadow, which shows the highest point in the period and a lower shadow that shows the lowest point in the period. Based on the relationship between these three elements, you have various patterns to interpret.
But you can use candlesticks charts without actually using Japanese candlesticks techniques. They come to replace the bar charts by offering a better perspective because on the bar charts you will miss the price action in the real body. Or the real body is not that obvious.
A bar chart is similar to a candlesticks chart, in the sense that this will stand for the upper shadow on a candlestick chart or for the lower shadow on a candlesticks chart, and this would be the real body. On the left side of the bar you will have the opening price and on the right side of the bar the closing price. That is the only difference between the two, but if you compare the two, then the candlesticks chart has the advantage of being more visible, more vivid if you want. It allows you to view the real body or the price action within each candlestick better.
It is worth mentioning that the timeframe plays a crucial role in the type of chart. For instance, if you look at the daily chart, you should be aware that many brokers decided to exclude the Sunday candlestick. Why? The FX market goes around the clock, 24/5, but it does have a couple of hours, or a few hours of trading in New Zealand. When it is early morning in New Zealand, Monday morning, in the United States is still Sunday. And therefore, that price action viewed on the daily chart is called the Sunday candlestick.
This broker, for instance, uses the Sunday candlestick. As you can see, every five candlesticks, the market forms a small candlestick that represents the Sunday candlestick. Why it is important? Well, if trading takes place on a Sunday, even for a couple of hours or so, then as a trader you will want to know what are the prices that exchanged hands. So keep that in mind when you apply any time of chart on your screen – if your broker shows the Sunday candlestick or not. Because if it does not show it, also the hourly chart will be affected by the missing price action.
Another possibility for a chart is the line chart. This is the simplest type of chart that exists and sometimes in trading, but also in life, simple things work best in the sense that you could draw a trendline like this to better view the market perspective with a simple line chart. You may even build a channel like this, and so on.
How it is different from a candlesticks chart or a bar chart? If we use the same chart but we switch back to the candlesticks, we see that the upper and lower shadows in the candlesticks chart do not appear in the line chart. In other words, the line chart only connects the closing prices for each period. The line goes from one candlestick to another one, without reflecting the higher or lower points. For instance, on the EURUSD chart, if we go on the candlesticks chart, we see that the EURUSD actually was trading at 1.1905 and then it made a new marginal high at 1.1915. But if we look at a line chart, you will not see that close, that potential double top.
MetaTrader Chart Settings
These are the main three types of charts, but you can also apply indicators on a chart to alter the way that a chart looks like. You can use point and figure charts, that mostly show vertical columns of Xs and 0s – a beautiful trading theory, one of the oldest that exists.
The MetaTrader also gives you the possibility to introduce the Heiken Ashi indicator on a chart. When applied on a chart, it transforms it and the beauty of it is that it makes it easier to see bullish and bearish trends. All this time the market formed here a bullish trend, this is a correction, this is another bullish trend, and so on and so forth.
The chart changes based on the type of indicators is applied, but keep in mind that the most common type of chart remains the candlesticks chart, as it offers abundant information to traders.
Thank you for being here and have a great day. Bye bye.