From the September 2013 issue of Futures Magazine • Subscribe!

A closer look at price chart choices

Price charts are a technical trader’s portal to the markets and a primary means of making trading decisions. Today’s market analysis platforms offer traders a variety of options for viewing price data on a chart, from chart style to interval. The style of the chart determines how price is displayed; for example, bar and candlestick charts. The chart interval dictates which data are used to construct the display. Here, we take a look at popular chart styles and intervals, including time, tick, volume and range bar charts. 

Chart styles

While there are many different chart styles, the two most common ways to display prices are bar and candlestick charts. These two styles show the same information: The open, high, low and closing prices for a specified chart interval. Visually, however, bar and candlestick charts are quite different. On a bar chart (also called an OHLC chart), the high and low prices for each specified interval appear as a vertical line, and two, small horizontal lines that represent the bar’s opening and closing prices appear on either side, as shown in the left chart of “Two styles” (below).

Candlestick charts show the same open, high, low and closing prices with a different display. Here, the opening and closing prices form the body of the candlestick, and the high and low prices for the interval are represented by the wicks — thin lines that appear above and below the body, as shown in the right chart in “Two styles.” The body of the candlestick appears black if the close is lower than the open and white if the close is higher than the open. It’s common for traders to substitute colors for black and white. A green body, for example, means that price closed above its open (showing strength), while a red body often indicates that price closed below the open (showing weakness). 

Some traders use candlestick charts to spot price patterns that may indicate a reversal or a weakening of the trend. Patterns can be formed within the same candlestick by comparing the size of the body to the wick, or across several adjacent candlesticks. A bullish engulfing pattern, for example, is a reversal pattern that occurs when the body of an up-candle bar completely covers, or engulfs, the body of the prior bar, signaling the end of a downtrend, as shown in “Time to turn” (below). Candlestick charting often works best when combined with other technical tools or indicators for confirmation. 

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