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Important Chart Types
From your early math classes to Market analysis, charts always played an important role. Watch our engaging and easy-to-understand video from the #LearnWithUpstox series to learn more about different types of charts and methods to analyze them.
Welcome back to a new blog of ‘Learn with Upstox’. Interestingly, not long ago there was a time when the internet wasn’t there, and the modern market tools weren’t there, and the fast clicks were a thing of the future, traders used to maintain numbers, fluctuations, the highs and lows on hand drawn chart papers. Until, modern charting evolved from hand-made charts to charts built on softwares, which have hundreds of tools and indicators. Nevertheless, there is no alternative to making your market basics strong.
To understand it better, let’s look at the multiple types of charts that we can use to understand the market movement better.
- Line Chart Analysis
In this simple analysis, we connect all closing price points of a stock or index over a period of time through a simple line and analyse. Line Chart pattern is especially useful for mid-term and long-term traders. It is not considered an efficient analysis pattern for the short-term traders.
- Candlestick Patterns
One of the most famous indicators is the Candlestick pattern. Interestingly, the story starts in Japan with a rice trader. One day, he went to the market during the opening hours, at 10am and asked for the price of 1Kg rice. The seller told him 15/ Kg. The trader returned at 12 O' Clock and found out that the price was at 20/ Kg. At 2:30 pm, the price came down to 18/ Kg. he came again at the closing and marked the closing price at 25/ Kg. Little did he know that his curiosity would lead him to an invention that we all know as the very efficient Candlestick pattern. He did that by defining 4 crucial market points, the Open, High, Low, & Close. If the Open is lower, and the Close is up, a green-coloured candle is formed and if the Open is up and the Close is lower than a red-coloured candle is formed. <Reference IMAGE above>
This pattern is also known as the better Candlestick pattern. Better because it effectively helps in following market trends. Its formula calculates the mean and declutters the chart. For instance, during an uptrend a series of green candles are made and during downtrend a series of red candles are displayed. This chart is especially good for mid or long-term trend-following. The disadvantage however is, because it misses out on important highs and lows, as it does not show gaps and this creates considerable risk for intra-day traders.
- Bar Chart
Before, the Candlesticks pattern was everyone’s favourite, many people preferred Bar Charts for following trends. Trading Magazines of the past are living proof of their popularity. A few big investors and established institutions still use them.
The simple line distinguishes between the bearish or bullish movement, marking the High and the Low, as the left-side and right-side tips indicate the Open and the Close.
If the Close is above Open then it is a green bar, and if the Close is below the Open, it is a red Bar.
- Bar Chart
Renko came from Renga, Japanese word for bricks. So, a Renko chart is an effective market Candlestick indicator made with red and green bricks.
How is the Renko Chart different from the rest?
In the Renko chart, there is no relation between price movement and time. Renko Chart makes a new candle every time a specific price movement is reached. Through ATR, we could set the various parameters for Renko to display its reading and make trading simpler.
All you have to understand is that Renko is also a chart type that moves very strongly. It is very efficient in depicting sharp trends in price.
So, if you are a swing trader, definitely go with it. If you are an intraday trader, then sadly it is not of much use to you. For all the intraday and short-term traders, Candlestick pattern is considered to be the most efficient.
If we were to conclude, we’d say that learning Candlestick patterns thoroughly is a must and learning other amazing tools is only going to help you.