The principle reason for technical analysis is to assess the graphical movements of price in the previous time and to anticipate the future change whether it is upward or downward. Consequently, charts are utilized to make the information increasingly noticeable and to make measurable investigations simpler.
For graphical illustration, certain periods of price fluctuation in the currency market are utilized. These consecutively means the opening price, the highest price, the lowest price and then the closing price of a specific timeframe. Considering that the forex market open 24 hours every day, the opening price (O) is normally the value level seen at 00:00 while the closing price is viewed at 23:00 in and marked as C (Close).
Line Chart: Only closing prices were depicted in the graph. Therefore, it is preferred by many analysts due to its simplicity. However, since linear graphs do not fully reflect market movements during the day, it might be insufficient for the short-term technical analysis. Another missing point of this chart type is the line (linear) logic approach to the chaotic market mechanism.
Graphical instance above : Linear GBP / USD chart. Due to its simplicity, it is possible to see the long-term movements clearly. However, it is difficult to detect fluctuations experienced during the day.
Bar Chart: It is the most broadly utilized and known type of chart in technical analysis. The most significant explanation behind this ubiquity is that it clearly demonstrates the opening, lowest, highest and closing prices in a certain period of time. The opening price is denoted short horisontal line at the left side of the bar. The top point of the vertical bar is the highest level the price in a given periods. The bottom of the bar is the lowest value that the price has come to in a same periods. Lastly, the closing price is expressed by the horisontal notch on the right side og the bar.
The extensive length of the bar indicates high volatility while the shorter length of the bar indicates that the price oscillation was low during the selected period i.e. a tight course was observed. It is possible to say that the bar graphs are more useful in terms of the formations described later in this book, compared to other types of graphs, as they clearly show market movements.
The importance of the bar graph is better understood in terms of the volatility of the GBP / JPY and therefore in the parity where the risk is high.
Candlestick Chart: The first example of modern technical analysis is the Dow Theory.
However, traders who lived in Japan in the 17th century about three hundred years before the introduction of the Dow theory had developed their own technical methods of analysis for the prices in the brass contracts. In these analysis methods, unlike the rest of the world, they took advantage of their own developed candlestick graphs, which were used in many parameters. Candlestick charts show open, highest, lowest, and close as values, such as bar graphs. However, while bar graphs only show this data, candlestick charts try to establish a logical link between these data. This analysis method is mostly used for short term. Therefore, the popularity of this chart among traders is high.
UP TAIL: Represents the highest price.
ANGLE OR CLOSED (Whichever is higher).
DOWN TOWER: Represents the lowest price.
ANGLE OR CLOSED (Which is the lowest value)
FILLED BODY: If the close price is higher than the open price.
EMPTY BODY: If the close price is lower than the open price.
In candlestick charts, the difference between the opening and the closing price determines the length of the body. In combination with hollow or full, short or long body candles, certain formations are formed. The pattern / candle formation as a sign of movement will be explained in the future article.