In this section, we will be discussing different types of price representations. First of all, you have to know what a price representation is so here ya go… Trading Price representation definition according to Ryan Herron –
A price representation is just a way to view current and historical pricing, on a chart, with ease. These prices may be represented as candles, bars, or an array of other views.
Japanese Candle sticks are my favorite way to view price. If you would like to know the history of why they are called Japanese Candlesticks, go Google it, but here is how they work…
Each ‘candle’ represents a specific time frame. If you have them set to 1 minute candles, then each candle represents one minute of time. During this one minute period, there will be:
Candle Sticks can be set to one minute, 5 minutes, an hour, a day, or any variation in between. Even if you want to see the price movements every 47 minutes, you can do that if your trading platform allows it. Japanese candlesticks are the best visual representation of price, in my humble opinion. Here is a picture to familiarize yourself with what they look like. The following 2 candles were used: a bullish (or candle moving up) and a bearish (or candle moving down).
Do you notice the differences between the 2? Can you spot the open price, the close price, the high price, and the low price? A bullish candle will OPEN lower than it closes. A bearish candle will OPEN higher than it closes.
Bar Charts will show you the same thing as Japanese Candlesticks but they are not as pleasing to look at. You have to strain your eyes to even see where price is. But Hey! Who am I to say? If you like them, use them because some traders like them. There is no real ‘better’ one; It just depends on the way the trader likes to see their charts. Bar charts will also show you an Open, High, Low, Close. Some traders call this an Open High Low Close Chart but most just call it a Bar Chart for simplicity.
The fact is that a bar chart and candle stick chart will show you the exact same information but in two different views.
There are numerous different types of charts out there. I will list a few but will not spend too much time on them because here at TraderBot Marketplace, we don’t use them too much. They are fun to look at and play with but are not needed with our style of trading.
Point and figure charts don’t plot price against time as candlestick charts do. Instead it plots price against changes in direction by plotting a column of X’s as the price rises and a column of O’s as the price falls.
They are based solely on price and not time. Time has nothing to do with Point and Figure Charting. If 92 hours have went by and price has not moves, there will be no new data to display. This difference can make Point and figure charts ideal for detecting directional patterns and trends.
Like Point and Figure, Renko charts do not rely on time. They rely on price action alone. They are prettier to look at for sure but also offers an advantage over point and figure charting; Trend Line drawing is often much easier with Renko charts.
I will not be going into the calculation of Heiken Ashi Charts but here is a basic definition. These are used to filter out some of the ‘Noise’ of trading. Some say they work well in trending markets and will help traders identify when to get in, where to place stops, etc…
A 3 line break chart is similar to Point and Figure as well as Renko charting, as it does not use time as a factor. Traders might believe a reversal occurs when the closing price exceeds the high or low of the prior two lines. This type of chart is not as popular as renko.
This is very simple. These charts take volume and squeeze them right into the candle so that you can see the volume without actually looking at a different area of the chart. Volume is just the amount of buying and selling going on. Point blank, the wider the candle becomes, the higher the volume.
All in all, it doesn’t make a difference what type of chart you are looking at as long as it works. Be careful though because if you start using certain types of charts, you may not be trading the actual price. This may throw you for a loop and cause losses. Until you know what you are doing, it is a great and wonderful idea to stick with Japanese Candlesticks!
