Generally, traders have four choices when choosing the type of chart to watch when conducting technical analysis of an asset. These include line charts, bar charts, candlestick charts and “point and figure” charts. In the examples that follow, we will look at the same price information plotted with different chart types so that we can see the differences.
The Line chart is the most basic, showing only the closing price of the asset. The “closing price” depends on the timeframe of the chart being used. If we are looking at a 5-minute chart, we are seeing the price location at the end of each 5 minute interval. This chart is valuable for people who are not concerned about the highs and lows of the interval:
Bar charts add information by showing vertical lines as each interval. The top of each line is the high of the period, the bottom is the low. Short horizontal lines are added, which show us the open (left horizontal line) and the close of the interval (the right horizontal line). Color is added to the chart to show us whether the asset closed higher or lower than it opened. One all of these charts, red will always show a lower close. Here is the bar chart:
The candlestick chart is a slight variation of the bar chart. The vertical “wick” shows us the high and low of the period. The body of the candle shows us the open and the close. The color of the candle allows us to quickly understand how prices behaved during the period. Here, red candles show us that prices closed lower than the open. White candles show us that prices closed higher. The main benefit of this chart over the bar chart is simply that it is visually easier to read. All of the same information is contained on this chart but when quick decisions need to be made, a trader needs to be able to fully understand what is happening on the screen. Candlestick charts can also help traders identify patterns more easily because of the additional information that is being shown. Here is a candlestick chart:
Point and figure charts are much less common today. These charts do not show volume (relevant for stock traders) and aim to remove the impact of time and periods of consolidation. Today, most traders rely on candlestick charts to construct a trading bias.