Charting is very important for most traders. It shows clearly the current direction of an instrument, and gives a clear idea about historical movements of that instrument. It also shows the highest and lowest levels that price has reached in a certain period.
There are several chart types that traders use: Line Chart, Bar Chart, and Candle Stick Chart which are available by default on the ACFX Metatrader 4. Trades can also download and install extended charting on MT4 to include other types such as Point and Figure, and Heikin Ashi Charts.
Below you can find a brief explanation about different types and their use:
- Line Chart
In MT4, a line chart represents the close bid price for every period on the chart. These prices are connected by a line. Line charts are smoother and clearer if plotted on a lower time frame; i.e. 5 minutes and lower.
- Bar Chart
This chart is plotted in form of bars. Each bar represents a time period. If a period of 5 minutes is chosen, then each bar represent 5 minutes. The top of the bar is highest price in that period, the bottom of the bar is the lowest price in that period. In Addition, the bar gives more information about the open price and close price in that period. This is done by plotting a small horizontal line to the left and another to the right of the bar for open price and close price respectively.
- Candlesticks
Sometimes referred to as Japanese Candlesticks as they were invented in Japan. The candlesticks are by far the most popular chart type. As with the bar chart, they also show the high, low, open and close prices of a certain period. Each candlestick represent one period.
The candlestick has a body which can be filled or hollow. A filled candlestick means that the close price in that period was lower than the open price. (down trend), while a hollow candlestick means that the close price was higher than the open price (up trend). Several same-styled candlesticks confirm an uptrend or a downtrend.
In addition, each candlestick might have an extension from above or below which are called wicks. In case the high is higher that the open or close, then that candle will have a wick either from above, or below which shows that the low was lower than the close or open, and the high was higher that the open or close. Please see figure for more explanation.
Candlestick theories were developed and several scientists and analysts have made studies and books about them. Many patterns (seen & hidden) have been identified and theories have been written on how to guess or forecast market using these patterns. These patterns are discussed in details in other parts on the blog.
- Point and Figure Charts
These charts date to over 100 years back. There are many techniques to draw them and use them. In Forex, modern point and figure charts are drawn with Xs and Os where columns of Xs are rising prices and columns of Os are falling prices.
- Heikin Ashi Charts
Heikin Ashi candlesticks are modified candlesticks. Plotters use an enhanced formula to draw them. The formula involves an average price for plotting them and hence came name “Heikin Ashi” or Average Bar.
Their use is concentrated around finding and isolating trends and predicting future prices. For more details please see figure below
