The Line Chart’s Simplicity Is Both Its Strength and Weakness


May 10, 2021, | AtoZ Markets We have three market analyses in forex trading: technical, fundamental, and sentiment analysis. These three analyses work hand in hand to help traders develop good trading ideas and see great trading opportunities. We consider the first one, technical analysis, the framework. It is the study of the price movement’s history, present and future potential actions. Under technical analysis, traders and analysts work around charts all the time. Today, we are going to discuss the first type, which is the line chart.

The line chart

A line chart is one of the three types of charts in the technical analysis together with the bar and the candlestick chart. Traders and analysts commonly use a line chart to see the bigger picture of the price. The line starts from one closing price to the next closing price. As we connect these two lines, we can visualize how the price movement behaved in general over a period of time.

This chart is not as complex as the others. Hence, it is simple and straightforward when we said that traders only use this to see the bigger picture. While it lets us know the closing price at the latter part, but we will not know what happens next. A line chart also does not provide too much detail about the price’s behavior in that given time frame. However, do not be worried because other charts can help you know more about the details, like a bar chart.

The line chart’s prominent role in helping traders is to let them visualize and compare one closing price to the next one. Some traders pay more close attention to the closing price and ignore any other fluctuations within that trading session. A line chart also shows a slope that lets us see trends easily.

Describing a line chart

A line chart is just like any other chart you had learned when you were in elementary school. It has two perpendicular axes. We call the horizontal one the x-axis, and it expresses time, while we call the vertical one the y-axis, and it denotes the prices. The prices on the line charts are called ticks. Now, it is essential to know that the term tick may have different meanings in forex trading. A tick may also mean the slightest possible price change an asset or security can have in spot or futures forex (0.0001 or 0.00001 in fractional quotes) as we take note that a tick’s dollar value may not be the same in two markets. Some analysts and traders use the terms price points and data points instead of “ticks” to avoid confusion.

Should I use line charts?

Line charts are simple and straightforward. They are very visual, and a trader can easily spot trends without any indicator. However, the line chart’s most vital points are also its weakness. Since it is simple and straightforward, it cannot offer more detail and information to the trader. A meticulous and careful trader will check and find out more about the pullbacks. Now, shall we use line charts? Of course, we should use it to our advantage, but we should not solely rely on it.

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