Basic Chart Types

Candlestick Charts

Candlestick charts were devised by Japanese rice traders in the 1600s and are discussed in detail in the next chapter. Candlestick charts are built on the open to close price relationships. The real-body is represented by the range between open to close and the color of the candle is black if the price closed below the opening price and white if the price closed above the opening price. The "wicks" on the both ends of candlestick represent the trading sentiment before settlement. Candlesticks have various patterns and truly represent supply and demand. Traders use candlestick charts with other market indicators such as moving averages, trend lines and RSI etc., to find the better opportunities than western charting methods such as bar and line charts.

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Point and Figure Charts

The Point & Figure (P&F) charting technique is one of the oldest methods where the chart represents a true change (a box size) in price. In P&F charts, the time passage on the X-axis is ignored as the chart records the price change. P&F Charts have Xs and Os representing ascent and descent of a fixed box size price change. Each box size is preset and the price is represented only if the price trades above or below the previous box by that amount. The P&F method visually displays clear support and resistance levels. Trades are initiated from these levels on breakouts and breakdowns. Charts do not move in congestion range, hence choppy trading can be avoided. Box sizes can be a function of price range, average true range or a fixed size based on the closing prices.

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