Having a chart in front of you is essential to analyse the market and anticipate the next price move. There are 3 main types of charts used by traders & investors: the candlestick chart, the bar chart and the line chart. In this lesson, we will use the EUR/USD on the daily time frame as an example.
The Candlestick Chart
Candlestick charts are probably the most popular chart type these days. Originally developed in Japan in the 18th century, candlestick charts are represented by a vertical line showing the price range for the chosen time frame. In our example, each candle represent a day. Each candlestick will show different colors depending on whether the asset ended higher or lower that day. Falling periods are usually displayed with a red candlestick body, while rising periods will have a green candlestick body. On days where the open and closing prices would be the same, the candlestick will have not body at all.
The Bar Chart
Bar charts are represented as vertical lines which show the price range for the chosen time frame, in our case each bar is a day. An horizontal dash on each side displays the open and closing prices for that day. The opening price is the dash on the left hand side of the bar and the closing price is the dash of the right hand side. The bar is green if the opening price is lower than the closing price and red if the if it’s the other way around.
The Line Chart
Line charts are the most rudimentary type of chart as they only show the closing prices over the chosen time frame. Each dot represent the closing price of the day in this example and the lines are connecting each of them. The line chart is not often used by day traders as it doesn’t provide much information about the price movements in between each dot. However, some traders and investors find it useful to a get an overview of the current trend at a glance.