May 5, 2021 | AtoZ Markets – In forex trading, we traders developed an idea of making better trading decisions by using market analysis. We have three types: technical, fundamental, and sentiment analysis. Under the first one, which is technical analysis, traders and analysts eat and breathe charts. These charts are further subdivided into three types: line, bar, and candlestick charts.
The three charts
The simplest of them all is the line chart that only shows a trade’s closing price to another. Traders use this when they want to see the bigger view. The more complex chart would be the bar charts. Bar charts show the opening and closing prices together with the highs and lows. Now, here comes the main star of this article which is the candlestick chart. A candlestick chart is somewhat similar to a bar chart. It is a bar chart variation that also shows the price information. The only difference is its format which is more graphic and somehow more visually pleasing.
The candlestick chart
If we ask around, we will realize that traders prefer candlestick charts more than bar charts because they are easier to understand and read. Since a candlestick chart is a bar chart variation, it also has the high to low range and the vertical line.
The candlestick chart varies from a bar chart with its body. And when we say body, we refer to the larger block in the middle that represents the range between the closing and opening price. Candlestick charts are efficient when we want to visualize bullish and bearish sentiments through the middle bodies in different colors. Usually, if the body has a fill or color, it means that the closing of a currency pair is lower than its opening. We will see the opening price on top of the colored body (block), and the closing price will be on the bottom of the body (block). If the body has no fill or is plain white, then it means that the closing price came higher than the opening price.
Color coding of candlestick charts
People prefer this kind of charting, especially for technical trader and analysts who spends a lot of their time looking at charts to do their technical analysis. Some people do not limit themselves to plain black and white. Some would use green in place of black and red in place of white. Some people prefer green and red because it helps them spot essential elements in the chart, such as uptrends, downtrends, and reversal points. Other colors are also allowed to be used since, after all, they are visual aids.
Why do people like candlestick charts?
Candlestick charts are beginner-friendly, especially to those still trying to figure out how to read charts. They are visual and easy to use, and the namings are a plus. They help in identifying market turning points like trend reversals. Again, there is more than one type of chart. Nothing is better than the other since each chart has its way of expressing the same information given. The best kind of chart is the one that suits your preference.