The most basic chart is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price data compared to the high and low for the day and this is why it is the only value used in line charts.
The most popular charting method is the bar chart. The high, low and close are required to form the price bar for each period of a bar chart. The high and low are represented by the top and bottom of the vertical bar and The opening price on a bar chart is illustrated by a horizontal line located on the left side of the vertical bar while the close is represented by a horizontal line on the right side of the vertical bar. This is typical with commodities, futuresand other financial instruments.
If the left horizontal bar is lower than the right horizontal line then the market has opened lower and closed higher, conversely if the left horizontal bar is higher than the right horizontal line then the market has opened higher and closed lower than the opening price.
On an intraday chart, each bar can represent anywhere from 1 minute to hourly time frame, usually 5 minute bar are utilized on intraday bar charts. On a daily chart, each bar represents the high, low and close for a particular day. Weekly commodity charts would have a bar for each week based on Friday’s close and the high and low for that week for all futures and commodity markets
Candle Stick Charts
Candlestick charts originated in Japan over 300 years ago, substantially long before bar charts were ever invented. Similarly to bar charts the candlestick line contains the market’s open, high, low and close of a specific day.
The candlestick has a wide part, which is called the real body. This real body represents the range between the open and close of that day’s trading. When the real body is filled in with color, it means the close was lower than the open. If the real body is empty, it means the opposite; the close was higher than the open.
Above and below the real body are the shadows, and it is the shadows that show the high and low prices of that day’s trading. If the upper shadow on the filled-in body is short, it indicates that the open that day was closer to the high of the day. A short upper shadow on a white or unfilled body dictates that the close was near the high. The relationship between the days’s open, high, low and close determines the look of the daily candlestick. Real bodies can be either long or short and either black or white. Shadows can also be either long or short.
Some traders swear by Candle stick charts while others prefer bar charts. I personally always preferred bar charts due to their simplicity and partly because I’m so used to using them. If you prefer to use Candlestick charts, you shouldn’t have any problems applying any indicators to either bar charts or candlestick charts. Line charts, are rather limited by the fact that they do not provide opening and closing data.
This data is often utilized by traders for entry and exit signals as well as for several other technical indicators. Therefore, I would discourage you from using line charts while you are learning basic trading methods and techniques. After you have a good grasp of basic trading principles and methods, you can then begin using line charts if you still wish to do so.