What is the Best Chart Type?
There are three dominant chart types when it comes to trading – line, bar and Japanese candlestick. Of course there are other types but these are used by the vast majority of traders and this is why our trading expert David Jones decided to explain them in a bit more detail.
The first and oftentimes default chart type is the line chart. Simply put it consists of a line that is formed by connecting the closing price levels for every day, hour, minute (or other selected timeframe) forming a continuous line. What price level is displayed can be changed to show the opening price, the high or the low for the day, but the default one (and widely accepted) is the closing price.
As line charts can only show one component of the price movement many traders use the bar chart, as it consists of four data points – the Open price, the Close price, the High and the Low for the time period. This chart type was widely used up until the mid-nineties and is still preferred by many.
But it is the Japanese candlestick that is considered by most to be the superior chart type. It’s essentially an upgrade on the bar chart, as it has the same four components in it but its visual representation (reminiscent of a candlestick with two wicks on both of its ends) is easier to see by the human eye and makes the process of interpreting it a bit quicker.
David also discusses the pros and cons of the three most popular chart types. You’ll be able to understand their importance for setting Stop Loss and Take Profit orders, as well as what you can discover by zooming in and out on charts.
At Trading 212 we provide an execution only service. This video should not be construed as investment advice. Investments can fall and rise. Capital at risk. CFDs are higher risk because of leverage.