Candlestick Charts vs. Bar Charts and Line Charts

Filed under: Learn Forex Trading |

There are several kinds of charts that you can use when trading forex, and different people tend to use different ones. The three main kinds of charts that people use are candlestick charts (which I advocate), bar charts, and line charts. I would like to take you through the basic ins and outs of each kind of chart right now, listing some of the pros and cons of each.

 

Line Charts

Line charts are the simplest kind of chart that you can use. The only data used is the closing price of each session. So if it is a daily chart like Figure 1, a new line is connected from the closing price of the previous day to the current closing price of the current day.  This gives you a very simple account of what is happening to price – which is fine for long-term investors. However, the downside is that you have no information about what has happened during a session, so you are in effect losing some possibly vital information.

Figure 1.

Bar Charts

Bar charts are in my opinion better than line charts for everyone except long term investors who are not too fussy about their entry, as they give out much more information about a session. Figure 2 shows the same chart as shown in Figure 1, but this time the data is represented as a bar chart. As you can see, there is much more information to take in, but it does all seem a little messy and inaccessible. Each bar shows the open, close, high, and low of each session. However, the layout forces your mind to work pretty hard in order to glean this information.

 

Figure 2.

Candlestick Charts

My favorite kind of chart is the candlestick chart. Figure 3 is the same chart as Figures 1 & 2, but this time the data is shown by a candlestick chart. It gives the same information as the bar chart, but in a much more accessible and user-friendly way. You can easily see if a session has been bullish (a white candle) or bearish (a black candle), and you can also see where price has moved during a session. For these reasons, to me, the candlestick chart is head and shoulders above all of the other. For more detailed information about candlestick charts, do a search on Google or buy one of Steve Nison’s popular books.

Figure 3.

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