The prices of financial market assets are constantly changing. As soon as a new quote arrives at the trading platform, it forms the chart of which there are three main types:
– Line chart
– Bar chart
– Japanese candlesticks
It is important to note, that on all UEZ Markets trading platforms, charts are built from ‘’bid’’ prices only. The ‘’ask’’ price can be viewed as a horizontal line on the chart.
This style of mapping is the easiest to understand for novice traders: it plots only the ‘closing’ price of the specific time frame (i.e. 1 minute, 1 hour etc) which is then interconnected by a line.
However, for professional analysis, it is not enough just to see where the price mainly goes, up or down. Therefore, this type of chart is only suitable for the superficial study of price movements.
Here is an example of a line chart of EUR/USD:
This type of chart provides much more information on price movements. It plots the following for the selected time frame:
- Opening price
- Closing price
- The highest price
- The lowest price
You may see these figures stated as O-H-L-C on your platform (representing Open, High, Low & Close ‘’BID’’ prices for that timeframe)
Look at the example of a bar chart for EUR/USD below.
How To Read The Bars Chart?
The bar chart opposite consists of a vertical line and two small horizontal lines: above to the right and below to the left. The horizontal line on the left-hand side shows the opening price of the asset, and the horizontal line on the right-hand side shows the closing price.
The vertical bar itself shows the range of prices that went into the trading platform for the selected period (1 minute, 1 hour, 1 day etc.). The lower edge of the vertical line is the lowest level quote during this time, and the upper edge is the highest level quote during this time.
Whilst bar charts are very informative, they are visually not as easy to read as Candlestick charts, which we will now discuss.
Back in the 19th century, rice traders in Japan invented schematic “candlestick” charts, showing the income-expenditure. Now, this type of chart is considered the most convenient and popular among traders and analysts alike, as it displays the full information of each time frame, in a visually easy to read format.
Here is an example of EUR/USD candles.
Each candle represents a fixed period (time frame) that traders select. For example, you can see how the price is changing every minute (M1), every 5/15/30 minutes (M5, M15, M30), every hour (H1), every 4 hours (H4), every day (D1), every week (W1) and every month (MN). Some platforms may offer an even higher selection of time frames.
One period = one candle.
How To Read The Candles Chart?
Each candle consists of a “body”: created by the opening and closing prices of the period.
If the price increases during this period, the opening price is at the bottom, the closing price is at the top, and the candlestick body itself is as usually coloured green (or filled in).
And vice versa: if the chart goes down, then the opening price is the upper horizontal line, and the closing price is the downside. The candle is usually coloured in red (or empty).
Bear in mind that you can customise the chart colours to your preference and different platforms may have default colour schemes.
The vertical line that runs through the candles is called the ‘wick’ or ‘shadow’. This represents the highest and lowest level of the quotes within that specific time frame.
Overview Of Charts
Let’s recap what we have learnt about platform Chart types:
- O-H-L-C represents the Open price, Highest price, Lowest price, and Closing price for the relevant period.
- Charts are created using ‘bid’ prices only; The live ‘ask’ price can be added as a horizontal line on charts.
- Line charts are the most basic – plotting only ‘closing’ prices.
- Bar charts contain full information of the period.
- Candlesticks are the most popular and visually readable chart type, displaying full information of the period.
- Candles are comprised of a ‘Body’ (open & close prices) and ‘Wicks’ (high & low prices)