Trading Charts - the most important chart types for successful day trading
Understand and analyse price developments with Trading Charts
Trading charts are visual representations of the market price and the fluctuation of it value. They illustrate the price development not only of equities, but also of bonds, commodities and currencies – i.e. Forex and other assets. Through, for example, Renko Trading Charts or Heikin-Ashi Trading Charts, you will be able to track real-time prices within your account and conduct analysis and trades based on it – all online and live. Trading charts exist in a variety of different variants, which may contain more or less relevant information. The range, ranges from very simple line charts to bar and candlestick charts to very complex professional charts.
The application of trading charts
Trading charts are a good orientation for the purchase and sale of securities. If you want to trade in securities, you can basically use two different methods of analysis: fundamental analysis and chart analysis. Fundamental analysis is made by using information, such as balance sheets and profit and loss accounts.
The fundamental analysis therefore requires a relatively high level of economic know-how and costs a lot of time, which is why it is primarily used by institutional traders.
Chart analysis is becoming increasingly popular with private investors. Not only is it easier to apply than fundamental analysis, but in many cases it also promises faster successes. The basic concept of the chart analysis is the assumption that there is information in the historical prices of securities that allows conclusions to be drawn about their future price development.
The most important trading charts
A – Line charts
B – Bar charts
C – Candle charts
A - Line charts
The simplest type of trading chart is the line chart. It only displays the closing prices of a security over time. The line chart is created by connecting these closing prices over time. There is a continuous line, which usually has a typical zigzag pattern for most securities, which reflects the ups and downs of prices.
B - Bar charts
The bar chart already contains much more information and trends and is therefore a little more difficult to read. In addition to the closing price, the bar chart also includes the opening price as well as the high and low price of a security. The top of the bar symbolizes the maximum price and the lower edge symbolizes the lowest price. The opening price is represented by a small horizontal line to the left of the bar and the closing price by a horizontal line to the right. For faster readability of a bar chart, the bar is usually colored green when the price rises and red when the price
B - Candle chart
A more complex example of a trading chart is the Candlestick Chart. It is a graphical variation of the bar chart. It contains the same information, but it is presented differently. The body of the candlestick is determined by the height of the opening price and the closing price. If the closing price is above the opening price, the trader will see the candlestick in green. If the closing price is below the opening price, the candles are colored red. The maximum price of the security is indicated to the trader by the so-called “wick”, a vertical line at the top of the candlestick body. Similarly, the low price is represented by the so-called “lunte”, a vertical line at the bottom of the candlestick body.
Testing TC24 Trading Charts in practice
Take advantage of our free guest access and look over the digital shoulder as we trade our specially developed trading tools and strategies. We discuss the setups and signals with over 1,500 club members. Learn more about the practical benefits of different trading charts! Try our TC24 for free & without obligation. Templates on a demo account and convince yourself of our trading approaches.
Trading Charts at a Glance
- Candlestick chart
- Bar chart
- Point & Figure
- Renko Chart
- Heikin-Ashi candles
1. Candle charts
Candlestick charts (candles) are among the most popular price charts. They are used by traders due to the variety of trading information, as well as the simple design.
The Candle chart has its name because of its appearance. On the trading chart, the candle contains
an opening, high, low and closing price for the corresponding time frame. The trader sets the time frame for each candlestick. A new candlestick is then created in the chart in the selected time frame. Candles show whether it is a bullish or bearish movement due to the color of the candlebody. You can read and interpret candlestick charts based on price activity as follows:
The opening price represents the first price traded during the candlestick. It is displayed either through the top or bottom of the candlestick body. When a price rises, it graphically results in a green or white candlestick. When the price drops, the candlestick turns red or black, depending on the settings in the trading platform.
The high is the highest price traded during the candlestick, indicated by the top edge of the candlebody or the wick. If the price closes at a high in the corresponding unit of time, no wick is displayed on the top.
The low is the lowest price traded during the candlestick, indicated by the lower edge of the candlestick or the wick. If the price closes to a low in the corresponding unit of time, no wick is displayed on the bottom.
The closing price is the last price traded in the candlestick, which is indicated either by the top or bottom of the body. Again, the upward-facing candles usually show green and the downward-facing candlesticks mostly display red. The color indicates whether the closing price or the last price is above or below the opening price during the selected time interval. Before the selected time interval expires, it changes constantly in the event of a price movement. The opening price remains the same, but new highs or lows may occur by the end of the time interval.
2. Bar charts
The bar chart is very similar to the candle chart. It contains exactly the same price information. However, the body is not a surface, but a simple stroke.
The upper part of each bar represents the highest price of the day, while the lower part represents the lowest price. The closing price is indicated by a short horizontal line to the right of the bar, while the opening price is indicated by a line to the left of the bar.
3. Point & Figure
Point & Figure Charts are a very special way of visualizing prices. The filtered price movements are represented from columns of X’s and O’s. X-pillars represent rising prices and O-pillars falling prices.
Each prize box represents a specific value that the price must reach to justify an X or an O. Time is not a factor in P&F charting. These charts evolve with price development. No price development means no change in the P&F chart. In the classic 3-box reversal charts, column inversions are further filtered, requiring a minimum of 3 boxes to reverse the current column. The triple reversal method is the most popular P&F chart method. P&F charts offer a unique view of price development that has several advantages.
- Filter insignificant price movements and noises • Focus on important price movements• Remove the time aspect from the analysis process• Significantly facilitate the identification of support/resistance levels• Provide automatic and subjective trend lines
Create a P&F chart
A P&F chart shows price movements with rising X-pillars and falling O-pillars. Each column represents an uptrend or a kind of downtrend. Each X or O occupies a so-called box on the diagram. Each chart has a setting called Box Size, which defines the price range for each box.
Each chart has a second setting called a reversal value. It determines the value that a price needs to move in the opposite direction and justify a column reversal. If this reversal value is exceeded, a new column is started right next to the previous one.
The “reverse distance” is the box size multiplied by the inverse value. A box size of 1 and the reversal amount of 3 would require 3-point movement to justify a reversal (1 x 3). An Xcolumn is extended as long as the price does not deviate more than the “reversal distance”.
4. Renko Chart
These trading charts developed in Japan also ignore the time and focus exclusively on price changes that meet a minimum requirement. In this respect, the Renko charts are very similar to the Point & Figure charts. Instead of X and O columns, Renko charts use price blocks that represent a fixed price movement. These stones are also sometimes referred to as “blocks” or “boxes”. They move up or down in 45-degree lines with one stone per vertical column.
Structure and properties
Renko charts are based on blocks with a fixed value that filters out smaller price movements. A normal bar, line, or candlestick chart has a uniform date axis with evenly arranged days, weeks, and months. Renko Trading Charts ignore the time aspect and focus only on price movement. If the block value is set to 10 points for an example, a price movement of 10 points or more is required to draw another block. Price fluctuations of less than 10 points are ignored and the Renko chart remains unchanged.
Like their Japanese relatives (Kagi and Three Line Break), Renko Trading Charts filter out the noise by focusing exclusively on minimal price changes. Renko bricks are not added unless the price changes by a certain amount. As with P&F charts, it’s easy to identify important ups and downs and identify important levels of support and resistance. Equipped with this information, traders can easily identify uptrends with higher highs and higher lows or downtrends with lower lows and lower highs. As with all charting techniques, traders should use other technical analysis tools to confirm or refute their results on Renko charts.
5. Heikin-Ashi Candles
The Heikin-Ashi candlesticks calculate price data that filter out the market noise. Heikin-Ashi Charts, share many features with the standard candles. However, they differ in the values used to create each candlestick. The Heikin-Ashi technique uses a modified formula:
Close = (Open + High + Low + Close) / 4 – Is the average price of the current bar
Open = (Open of Previous Bar + Close of Previous Bar) / 2 – Is the center of the previous barHigh = Max of
(High, Open, Close) – Highest value of the three candlesticks
Low = Min of (Low, Up, Too) – Lowest value of the three candlesticks
Structure of the Trading Chart
The Heikin-Ashi chart is structured like a normal candlestick chart, except that in this case the formula for calculating each bar is different. The descending periods are represented by red candlesticks, ascending periods by blue candlesticks.
From the graph above you can see some differences between a normal and a heikin-ashi chart. Heikin-Ashi has a smoother appearance as it essentially shows an average of movement. With Heikin-Ashi, there is a tendency for the candlesticks to remain red in a downward trend and blue for an upward trend, while normal candlesticks change color, even if the price is mostly in one direction.
Special features of this trading chart:
The current price displayed in a normal candlestick chart is also the current price of the value and corresponds to the closing price of the candlestick (or the current price if the bar is not closed). Since Heikin-Ashi takes an average, the current price on the candle stick may not match the price at which the market actually trades. For this reason, many chart platforms show two prices on the y-axis: one for calculating the Heiken-Ashi and one for the current price of the product. Heikin-Ashi charts can also be used to keep positions open while a trend continues.
Try TC24 Trading Charts
Take advantage of our free guest access and look over the digital shoulder as we trade our specially developed trading tools and strategies. We discuss the setups and signals with over 1,500 club members. Try our TC24 for free & without obligation. Templates on a demo account and convince yourself of our trading approaches.