Table of contents
When you start your trading journey using Technical Analysis the type of trading chart you use will be key. A trading chart shows price action for an instrument of your choice.
This page documents the most popular types of trading chart.
All charts on this page refer to the S&P 500 and show data between May 07 and July 09
These are the simplest form of charts to construct. Each point on the line represents the close price for one data element (minute, hour, day, week, etc).
A mountain chart differs from a standard line chart by simply shading the area under the line.
Bar (OHLC) Charts
A bar chart is the next step up in terms of complexity from line charts. Each bar represents one data element (minute, hour, day, week etc.) and shows the Open, High, Low and Close values. The mark on the left side of the bar represents the open and the mark on the right side represents the close. Each bar is usually colour coded to identify whether the close finished higher or lower than the open.
Japanese Candlestick Charts
Japanese candlestick charts depict exactly the same amount of data as bar charts but each data element (minute, hour, day, week etc.) is represented as a candle. Each bar is always colour coded to identify whether the close finished higher or lower than the open.
We shall be covering Japanese candlestick patterns heavily on Trading AtoZ. To be a successful Technical Analyst you must understand this chart type and be familiar with the various candlestick patterns.
Heikin-Ashi (HA) charts are derived from the data within a standard candlestick chart. The data presented on these is still Open, High, Low and Close but these 4 values are derived as follows:
- HA Close = Average of current Open, High, Low, Close
- HA Open = Mid point of previous HA bar
- HA High = Highest of High, HA Close, HA Open
- HA Low = Lowest of Low, HA Close, HA Open
As you can see from these 4 values the Open and Close are not represented on each candle of a heikin-ashi chart. The High or Low may not be represented either.
For this reason I do not consider heikin-ashi charts in the same light as line, bar or candlestick charts, as you can not trade directly from them. They are very close though and add immense value.
A tick is an individual transaction. When plotting ticks a line chart is used as each tick represents a single price. The X axis of a tick chart is not uniform because the frequency of ticks (transactions) varies during trading sessions.
If ticks are used in conjunction with other chart types mentioned on this page then each bar/candle would represent a specific number of ticks. This would then allow Open, High, Low and Close values to be determined.
Point and Figure Charts
Point and Figure charts represent rising prices with an “x” and falling prices with an “o”. There are only 2 variables to consider when constructing a point and figure chart:
- How many ticks does each “x” and “o” represent. This is known as the box size.
- How many boxes in the opposite direction are required to signal a reversal.
When the last symbol plotted was an “x” then:
- if the next box closes higher then another “x” is plotted in the same column
- if the next box closes lower then nothing is plotted
- if a number of boxes equal to the reversal amount close lower then an “o” is plotted in a new column
When the last symbol plotted was an “o” then:
- if the next box closes lower then another “o” is plotted in the same column
- if the next box closes higher then nothing is plotted
- if a number of boxes equal to the reversal amount close higher then an “x” is plotted in a new column
The X axis of a point and figure chart is not uniform because the time taken to construct a new box varies during trading sessions.
Renko charts are similar to point and figure although their default configuration signals reversals a lot quicker. A renko chart consists of bricks which represent a set amount of price change. Rising prices are typically depicted as green bricks, whilst falling prices are depicted as red bricks.
When prices rise by the set brick size (compared to the high of the previous brick) then a new green brick is plotted in a new column at a 45 degree incline.
When prices fall by the set brick size (compared to the low of the previous brick) then a new red brick is plotted in a new column at a 45 degree decline.
The X axis of a renko chart is not uniform because the time taken to construct a new brick varies during trading sessions.
Kagi charts have a lot of similarities to point and figure although they do not use the box method. Instead the colour of the line is based on the direction, green for rising prices and red for falling prices. The key to these charts is when the colour changes. This occurs when the price breaches the previous swing high/low.
As you can see from the example below the line changed from green to yellow around the 09th June because the price had fallen below the swing low at the beginning of June. The line briefly turned green around the 22nd June because it had risen above the swing high of the 12th June.
Some kagi charts are drawn with thick green lines and thin red lines to. When the market goes higher than a previous swing high the line thickens (Yang line). When price breaks below a previous swing low, the line thins (Yin line).
Three Line Break Charts
Three line break charts also have many similarities to point and figure charts. The term three line determines how the chart reverses. A new bar is plotted as green when it closes above the high of the previous 3 bars. A new bar is plotted as red when it closes below the low of the previous 3 bars.
For more information regarding many of these chart types please refer to the suggested trading books section of this site.
Japanese Candlesticks, Three-Line Break, Renko and Kagi charts feature heavily in Steve Nison’s Beyond Candlesticks book.