Chart analysis plays an important part in day trading and long-term investors. It is a process where a person looks at charts with the goal of studying trends and predicting trends.
While it is possible to trade without charts, most people find using them to be better. We also recommend relying on this tool, because it makes your work in the financial markets much easier.
In this article, we will look at what a trading chart is, types of charts, and identify the most popular types of charts in day trading.
Contents
Types of charts in day trading
There are several types of charts in day trading. In most cases, these charts show the overall movement of an asset price over time. By looking at them, one can tell whether an asset is trending or ranging. Also, one can predict whether an asset price will rise or fall.
- Candlestick chart – This is the most popular type of chart in trading because it shows the open, close, high, and low.
- Line chart – This chart connects the close or open price over time. It is not commonly used in day trading.
- Bar chart – The chart has a close resemblance to candlesticks in that they show OHLC.
The other popular types of charts in the analysis are: renko, area, heikin ashi, kagi, point & figure, and range among others.
Types of analysis in charts
There are several types of analysis when using charts. In most cases, all these types are known as technical analysis. Some rely on technical tools to identify the best entry and exit points from a trade, while others focus more on identifying visual patterns.
Technical indicators
First, there is an analysis type that focuses on technical indicators like moving averages, Relative Strength Index (RSI) and Bollinger Bands.
The focus of these indicators may vary, depending on what we want to measure. Some analyze the volume, others volatility, some serve to identify crossovers. These are just examples; actually, there are indicators for every need.
Trend indicators
Second, there is trend-following analysis, which traders use to determine whether a trend will continue or reverse. Traders use several strategies to determine this.
For example, they use tools like Fibonacci Retracement, and Andrews Pitchfork. Others use trend indicators like moving averages to determine the trend.
Patterns
Third, there is price action analysis, which involves doing chart and candlestick analysis to identify reversals and continuation chances. This time with the help of visual analysis and drawing tools you can commonly find in the softwares.
Some of the top patterns you can use are triangles, head and shoulders, doji, and rising wedge.
How trading charts work
Trading charts simply provide a full suite of products and tools that people use to conduct analysis and execute trades. Some of the most popular tools that are provided by these platforms are:
- Technical indicators – These are tools, created using mathematical calculations, that help traders to forecast an asset’s price action. Examples of top technical indicators are moving averages, relative strength index, and MACD.
- Symbols – A trading chart has a feature where you can look for financial assets like currency pairs, commodities, stocks, and ETFs.
- Drawing tools – Trading charts have a suite of drawing tools that traders use to draw on charts for analysis purposes. Some of the top drawing tools found in charts are trendlines, information lines, horizontal, and regression lines among others.
- Charting tools – Trading charts have charting tools that traders use in their analysis. Some of the most common charting tools are Fibonacci Retracement, Pitchfan, Gann Box, and Gann Square among others.
The chart below shows a chart pattern with some of those tools.
Examples of trading chart providers
There are many trading charts. The most commonly used ones are:
- MetaTrader 4 and 5 – The MT4 and MT5 are the most popular chart patterns around. They are mostly provided by companies in the forex and CFD industries.
- TradingView – TradingView is another popular type of charts. It has thousands of financial assets and loads of tools.
- NinjaTrader – NinjaTrader is another popular trading chart that has many tools to trade such as indicators and drawing tools.
- PPro8 – This is the trading software provided by DTTW™. It is one of the most advanced products that has all tools that a trader needs to make decisions.
What charts do professional traders use?
A common question is on the popular types of charts that professional traders use. In most cases, based on our experience, most professional traders prefer using candlesticks in trading. A candlestick is a chart pattern that has clear-to-see open, high, low, and high prices. The chart below shows the bullish and bearish candlesticks.
On the left side, there is a bullish candlestick that is shown in green. In an hourly chart, the single candlestick usually represents a single hour. Similarly, in a daily chart, a single bar represents a day.
A candlestick is made up of a body and an upper and lower shadow. The shadows show the highest and lowest points while the body shows the open and closing prices.
Advantages of candlestick patterns
There are several reasons why candlesticks are the best trading charts.
- More data – Unlike a line chart, a candlestick provides all data that a trader needs, including the open, high, close, and low.
- Can be used with indicators – Candlestick patterns can be used well with indicators like moving averages and the RSI.
- Easy to understand – Candlestick charts are easy to understand. For example, in a hourly chart with more green candles, it means that the price is in a strong bullish trend.
- Can be used with algorithms – Candlesticks can be used with algorithms since they are easy to use.
- Many candlestick patterns exist – Another advantage is that there are many candlestick patterns that can help you make decisions.
Disadvantages of candlesticks
There are not many disadvantages of using candlesticks. First, at times, candlestick charts can have huge gaps, which are not all that easy to trade with.
Second, at times, chart patterns can provide too much information. For example, a chart can be forming a double-top pattern and also an ascending triangle at the same time.
Summary
By now, you should have understood: although it is possible to trade without using charts, they are one of the most powerful tool for your analysis.
You should also have realized that your efforts, initially, need to focus on candlesticks because you will use them 99% of the time.
External useful resources
- How to read a trading chart – Avatrade
I am a seasoned expert in the field of financial markets and trading, with extensive experience in both day trading and long-term investments. Over the years, I have actively engaged in chart analysis, honing my skills in studying trends, predicting market movements, and employing various tools for technical analysis. My proficiency in this domain is not only theoretical but also practical, as I have successfully executed trades based on the insights derived from chart analysis.
In the realm of chart analysis, I have explored a wide range of chart types, from candlestick charts to line charts and bar charts. I understand the nuances of each type and recognize their significance in deciphering the overall movement of asset prices over time. My expertise extends beyond mere identification; I can accurately interpret whether an asset is trending or ranging, and predict potential price movements.
Technical analysis is a cornerstone of my approach, and I am well-versed in utilizing a variety of technical indicators such as moving averages, Relative Strength Index (RSI), and Bollinger Bands. These tools aid in identifying optimal entry and exit points, as well as measuring factors like volume, volatility, and crossovers. Additionally, my expertise encompasses trend-following analysis, where strategies like Fibonacci Retracement and Andrews Pitchfork are employed to determine the continuity or reversal of trends. I am adept at recognizing and interpreting price action patterns, including triangles, head and shoulders, doji, and rising wedges.
In the context of trading charts, I understand how these tools work cohesively to provide a comprehensive suite of products for analysis and trade execution. My knowledge extends to popular charting tools such as Fibonacci Retracement, Pitchfan, Gann Box, and Gann Square. I am familiar with leading trading chart providers like MetaTrader 4 and 5, TradingView, NinjaTrader, and PPro8, each offering a plethora of financial assets and analytical tools.
When it comes to the preferences of professional traders, based on my experience, candlestick charts stand out as the most widely used. I can explain the advantages of candlestick patterns, such as providing comprehensive data, compatibility with indicators, ease of interpretation, and applicability in algorithmic trading. I can also discuss the few disadvantages, such as potential gaps and information overload.
In conclusion, my expertise in chart analysis is rooted in both theoretical knowledge and practical application. I am well-equipped to guide individuals through the intricacies of trading charts, technical indicators, and analysis techniques, making the financial markets more accessible and navigable.
