We continue the series of articles where we tell you about the basics of trading on the cryptocurrency market, the key techniques and methods of analyzing the price movement of assets.
In the previous article, we considered two main trading strategies in the financial markets — investing and trading. We discussed the basic rules and criteria for determining the preferred trading strategy, and also considered the main points that should be paid attention to when searching for a suitable cryptocurrency project for investment.
In today’s publication, we will consider the elements of the stock chart, study its main varieties, and also touch on the criteria for the applicability of different types of charts in certain conditions.
Table of contents
- What is a Stock Chart;
- Line Stock Chart;
- Histogram Graph (Bars);
- Japanese Candle Charts.
What is a Stock Chart?
On every cryptocurrency platform, the price movement of digital assets is visualized using exchange charts.
Price charts are a set of price points superimposed on various time intervals. The price scale is displayed on the vertical axis, and the time scale is displayed on the horizontal one.
The chart moves left-to-right. On the right side of the chart, the latest data on the movement of the currency pair is always shown.
Price movement charts allow traders to analyze the movement of one currency against another, view the history of the growth and fall of currencies over time.
A chart is a basic tool for analyzing the current market situation. According to the chart, an experienced trader can get information about the trend of the movement of a currency pair, the ratio of the forces of sellers and buyers in the market, conduct technical analysis, and predict the further movement of the price quotation of a currency pair.
For less experienced traders, trading platforms provide a huge list of graphical analysis tools that can be used in conjunction with a currency movement chart. Stock charts provide useful information for technical analysis and, together with graphical analysis tools, are an important tool for making trading decisions.
Stock charts can be classified according to the time and method of displaying price movements. There are many types of charts, they differ in information content, the number of displayed parameters about the price movement, and applicability in certain conditions.
According to the method of display, there are three main types of stock charts
- Line Stock Chart;
- Histogram Graph (Bars);
- Japanese Candle Charts.
Some platforms provide the ability to look at cluster graphs, which are the basis of cluster analysis. We will consider this type of analysis in more detail in the following publications.
Line Stock Chart
A Line chart is the simplest type of graphical representation of price movements. Visually, it represents a range of points connected by a solid line. Each point reflects the result of trading for a certain period of time (1 minute, 15 minutes, 1 hour, etc.). The point on the chart reflects only the closing price of the selected currency at the end of the selected time unit.
This type of chart contains a minimum of information for technical analysis. Most often, such charts are used to visually determine the trend of price movement on long timeframes. This type of chart is preferred for novice traders. However, more experienced traders also do not neglect the use of line charts. For example, when a large number of indicators are plotted on the chart, a linear chart can be used to visually “unload the picture” for a more convenient perception of the price.
A kind of line graph is a Zone graph
A Zone graph is a visually more easily perceived Line one. According to the linear chart, you can only observe the price movement of the selected currency pair. The Zone chart makes it easy to determine the lows and highs from which the price moves in the opposite direction. These areas are called zones.
Histogram Graph (Bars)
A Histogram graph is more common than a Line one. Visually, the Histogram graph consists of bars. Graphically, each bar is a vertical line, with two short perpendiculars sticking out in different directions of the bar.
As in the case of a Line chart, each bar displays the price movement of a currency pair for a certain time interval.
However, unlike Line one, this type of chart contains much more information about the price movement that a trader needs to make trading decisions. In addition to the closing price, the bar graphically displays the quoted price at the beginning of the selected time period, as well as the maximum and minimum values of the price of a currency pair for a certain period of time. If the quoted price of a currency pair has increased within a given range — the bar is colored green and is also called a bullish bar, if the quoted price has decreased, then the bar is colored red and is called a bearish bar.
Each bar of the histogram chart consists of four elements:
- Open — the opening price of a currency quote at the beginning of the selected time period;
- Close — the closing price of the currency quote at the beginning of the selected time period;
- High — the highest value of the price of a currency pair for a time period;
- Low — the lowest value of the price of a currency pair for a time period.
The obvious advantage of a bar chart in comparison with a linear is the ability to simultaneously observe all 4 specified prices for a currency pair for a given unit of time on each bar of the price chart.
On Histogram graphs, the length of each bar indicates the difference in the price of a currency pair during the selected time interval. Therefore, these graphs are used to determine the volatility in the market.
Japanese Candle Charts
This type of chart has been used in the financial markets relatively recently (since the 90s of the 20th century), but it is already the most common type of exchange chart used by most traders around the world. Today, Japanese candlesticks are available on all trading platforms and exchanges.
Based on Japanese candles, special methods of technical price analysis have been developed to predict the further movement of the currency pair. We will also consider the main candle patterns in the following publications.
Japanese candles have a close resemblance to histograms. Each candle also displays the 4 main movement prices for the selected time range.
The main difference in the graphical representation of the candle from the bar is that the opening and closing price of the quotes from the body of the candle. The maximum price values during a given time range from the shadows (or tails) of the candle. Accordingly, the upper shadow is the maximum value of the price, the lower shadow is the minimum value.
Japanese candles have gained popularity due to the more visually convenient movement of price quotes than any other type of chart, including bar charts.
Just as in the case of bars, if the quoted price has increased over the selected time interval, the candle is colored green, if the price of the currency pair has decreased, the candle is colored red. Sometimes the old graphic design can be used, in which the growing candle is painted white (or has a transparent body), the falling candle is painted black.
Today we have analyzed the main elements of the stock chart, studied its most common varieties, and considered the main advantages of different types of charts. In the following publications, we will analyze in detail the main graphical models and patterns of candle analysis, as well as the key elements of graphical technical analysis.