Types of Charts and Time Frames
Graphics are the main tool of the technical analyst. It is simply a visual representation of an asset's price over a defined period and allows the trader to make buying and selling decisions based on past price movements.
The chart aggregates all buys and sells transactions for the analyzed instrument, that is, it is the result of all orders from market participants. This tool allows the trader to identify movements, patterns, and trends for making investment decisions. The y axis (vertical axis) represents the price scale and the x axis (horizontal axis) represents the time scale. The graphs are drawn automatically in the Metatrader 4 software.
The most common types are line, bar, and candlestick charts.
Line Chart
It is the simplest representation an analyst can come across. Its layout is due to the union of the points that represent the closing prices of each period. As only information about the closing of the market returns, nothing reflects on the behavior of prices during the trading session.
This type of chart is generally used to get an overview of price movements. Here is an example of a line chart for EURJPY:
Bar Chart
It is a much more complete form of representation than the Line graph since the maximum, minimum, opening, and closing prices are displayed in a single bar.
A bar is simply a segment of time, be it a day, a week, or an hour. The opening price is indicated by a horizontal line to the left of the bar and the closing price is indicated by a line to the right of the bar. The bottom part of the vertical bar indicates the lowest price traded for that period, while the top part of the bar indicates the highest price.
Here is an example of a bar chart:
Candlesticks Charts
The candlestick chart is a variation of the bar chart. They are graphic elements for price representation that resemble candles, hence the name candlestick. Candlestick was developed by the Japanese in the eighteenth century to analyze the prices of rice futures contracts.
Candles represent the variation of prices over a given period of time and are formed by a body, upper shadow and lower shadow. Commonly differentiated by color, the candle indicates the opening price, ie the asset value at time zero and the closing indicates the price of this asset after a specified period of time. The shadows, represented by the thin lines, indicate the price oscillation between the opening and closing moment of the candle. If the closing occurs above the entry price, it’s called a bullish candlestick and is usually drawn in green. The red candle shows that the closing price was lower than the opening price, also known as the bearish candle.
Time Frame
The graphical time is the representation of the time in each bar plotted on the graph. When choosing a 1-hour timeframe, for example, each bar or candlestick will represent the variation that prices have undergone in an interval of 1 hour. There are several options and variations of Time frame and the right choice depends on your personality, you need to feel comfortable with the time frame you are trading in. In addition, many traders use different time periods in order to get the broadest possible view on the behavior of instruments and to be able to define strategies with different time frames.
Below the main characteristics of each trading style:
TRADING STYLE
TREND TIME FRAME
TRIGGER TIME FRAME
Position trading
Weekly
Daily
Swing trader
Daily
H4
Day trading
H4
H1
Scalper
H1
M1, M5, M15
Takeaways
There are several different types of price charts, and each will have its own advantages and disadvantages. The choice depends on your personal preference, look for balance to have enough information on the chart to make good trading decisions.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorized to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
