Constructin of chartsThe first documented use of charts goes back to ancient Babylonia, where their early forms were used primarily for record-keeping by astrologists and merchants. Then, sometime between the 5th and 6th century A.D., these graphical representations developed into a form reminiscent of today’s charts. Further refinement and development of charting techniques continued through the centuries, influenced by advancements in mathematics, commerce, and technology, which propelled charts from hand-drawn illustrations to sophisticated computerized displays in the 20th century. Nowadays, there is a myriad of visualization options, but line charts, bar charts, and candlestick charts are the most widely used for the purpose of technical analysis.
Key points:
A chart is a graphical display of data, usually price and volume.
In the context of financial markets, charts serve as tools for analyzing trends, patterns, and relationships in data.
There is a wide array of visualization options available today, with line charts, bar charts, candlestick charts, and equivolume charts being among the most commonly used.
Different types of charts are suitable for analyzing different aspects of data, ranging from long-term trends to short-term price movements and volatility.
Line chart
A line chart is represented by a single line that provides information about the price on the vertical axis and time on the horizontal axis. It is typically constructed by connecting a closing price. This type of chart is suitable for analyzing long-term trends, but its main drawback is that it provides only one piece of information, unlike a bar graph or a candlestick graph.
Illustration 1.01
The illustration above shows the daily line graph of Bitcoin (BTCUSD) between 2020 and late 2022.
Bar chart
A bar chart is constructed with bars, each representing one particular time interval. These bars provide information about opening price, closing price, high, and low. As such, volatility and various price patterns can be easily observed. This type of chart fits short-term, medium-term, and long-term trend studies.
Illustration 1.02
The image portrays the daily bar chart of silver (XAGUSD) throughout 2022 and early 2023.
Candlestick chart
A candlestick chart is very similar to a bar chart and provides information about opening price, closing price, high, and low. It consists of the real body and shadow. The real body is a rectangular area between the opening and closing prices. Shadows are the price extremes that occur within a trading session and are represented by thin bars above and below the real body. The shadow above the real body is called the upper shadow, and the shadow below the real body is called the lower shadow. Candlestick charts are appropriate for analyzing short-term, medium-term, and long-term trends.
Illustration 1.03
Above is the weekly candlestick chart of gold (XAUUSD) between late 2007 and early 2017.
Equivolume chart
In an equivolume chart, the width of each bar or candlestick is proportional to the volume traded during that period, while the height represents the price range (high to low) for the same period. This type of chart aims to visually depict the relationship between trading volume and price movement, allowing traders to identify patterns and trends more effectively. Equivolume charts are especially useful for analyzing the strength of price movements in relation to trading activity.
Illustration 1.04
The equivolume chart of silver (XAGUSD) is depicted above.
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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Therefore, your own due diligence is highly advised before entering a trade.
