Trading charts

Quick definition

Trading charts are data visualisation methods that financial traders use to identify buy and sell opportunities.

Key details

• Trading charts provide financial information about current prices and trends in a visual way that’s easy to understand
• Charts are at the centre of any financial traders’ armoury, helping them identify potential trading opportunities
• The most common form of trading chart are line and bar charts

What are trading charts?

Trading charts are at the centre of data visualisation as they make it possible for traders to interpret how prices move up and down, as part of technical analysis. Line and bar charts are some of the most widely used data visualisation methods in financial markets.

What is a line chart?

A line chart is a data representation method that connects a series of data points in a continuous line. While being the most basic type of chart, it is limited, as it only shows the closing prices of underlying assets.

A line chart stands out in part because it allows traders to see where the price of a security has travelled over time as it only shows closing prices. In addition, line charts allow traders to focus on key price points as they reduce noise from critical times by not indicating opening, high, and low price points.

Line chart pros & cons

Pro – precise and clear

Line charts focus on key price points, which is essentially the closing price at any given time, while sparing traders from being bombarded with unnecessary information. The use of line charts allows traders to identify key price points such as support and resistance levels with ease.

Pro – easy to use

Line charts are the best charts for novice traders, given their ability to represent crucial data in a simplified manner. For novice traders, line charts act as the foundation of basic chart reading before they make a transition to learning advanced techniques.

Con – lack of information

Line charts lack key information that’s crucial for high-level technical analysis. They are limited to closing prices, leaving traders unable to implement trading strategies that require knowing opening, high, and low price points.

What is a bar chart?

Bar charts allow for some of the most advanced techniques with data representation in financial markets. Unlike line charts, bar charts show multiple price points made up of high, low, opening, and closing points.

Each bar in the chart comes with a vertical line indicating the highest and lowest prices reached during a given period. The opening price for a given period is depicted by a small horizontal line on the left, while the closing price is depicted by a small horizontal line on the right of the vertical line. Colour coding comes into play to show whether the price moved up or down.

Bar charts are a collection of bars depicting price movements at every moment. In minute charts, there will be a price bar indicating how price moved up and down during the minute. A daily bar chart, on the other hand, comes with a price bar indicating where the price opened, how high and low it went during the course of the day, and ultimately where it closed.

Bar charts pros & cons

Pro – information abundance

Bar charts come with a lot of information in the form of opening, closing, high, and low points that traders can use to make informed decisions. It is possible to detect the level of volatility in the market by analysing the sizes of the bars. The larger the bars, the higher the volatility.

Pro – can be interpreted quickly

Colour coding of the price bars to indicate whether the price moved up or down helps in providing information at a glance.

Cons – can be overwhelming

Novice traders may be overwhelmed by too much information provided by bar charts compared to line charts.