Types of Spread Betting Charts

By mosesbet · Filed Under Spread Betting Comments Off on Types of Spread Betting Charts 

Technical analysis is one of the three types of analysis for spread betting (in addition to fundamentals and sentimental analysis).  When trading on technical analysis we usually use 3 different types of charts to study derivatives and markets: candle stick data, bar charts and line charts.

The following guide provides an introduction to the different types of technical charts used in spread betting and forex trading. I’ll provide an explanation of how they work, advantages and disadvantages, plus how to use them for trading.

Candle Stick Chart of EUR/USD

Candle Stick Charts

Candle stick charts are the most common type of charts used in technical analysis.  If you read any other people’s day trading blogs then they’ll commonly use candle stick charts to describe or illustrate their daily trades.

Candle stick charts are usually composed of the body (coloured in black/white or red/green) and an upper and lower shadow (wicks).  The real body illustrates the opening and closing prices, while the wicks indicate the high and low for that specific period of trading.  The area of the real body is usually coloured red (or black) if the price closes below the opening price, and green (or white) if it closes higher.

The “shadow” is the total price excursions above and below the real body (i.e. wicks).

The advantages of candle stick charts is that they combine bar chart and line chart data to provide an easier understanding and break down of a market.  For example, big long wicks show a lot of volatility during the day (consistently breaking out of the resistance/support levels) while a short wick shows market consolidation with little movement.

We’ll typically find long wicks in volatile markets such as UK shares and small wicks in low movement markets such as gold, wheat and interest rates.

You can identify bullish markets by long, white real body, which indicative of a lot of buyers going long. Alternatively, a long, black real body shows a high percentage of sellers in the market.

Overall candle stick charts are very useful for traders and you can identify a number of different patterns such as Long vs Short Bodies, Marubuzo, Doji, Spinning Tops, Long vs Short Shadows and more…

Line Charts

Line charts very simply draw a line from one closing price to the next closing price. By altering the time parameter of a market (e.g. 1 minute, 5 minutes, weekly, monthly, annual) we can see the general price movement of a financial instrument such as a forex currency pairing like $/£.

The advantage of line charts is that they make it easy to view general price patterns over extended periods of time, however the downside is that they reveal little information about highs/lows and daily volatility during trading.

Bar Charts

Bar charts are similar to candle-stick charts and show the opening/closing price as well as the highs and lows for a specific period of trading.

The top of the bar chart shows the highest point of trading while the bottom of the bar shows the lowest point of trading.  The vertical size of the bar in total shows the trading range as a whole.

The horizontal hash on the left of the bar shows the opening time whilst the hash on the right of the bar shows the closing time.

The advantages of bar charts are that they are again simple to read and comprehend. Bar charts are also called OHCL charts because they provide information on the Opening, High, Closing and Low for that market.

 

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