Chart Types and Time Frames

Chart Types
There are four commonly used chart types
When working with a trading platform, traders can choose from several chart types and set the time frame according to their liking. Some may say that those are secondary aspects of trading and do not make any difference. However, when the money is at stake, everything becomes so much more important.

By reading this article you will understand that choosing the chart type and finding the optimal time frame is no mere whim and learn how these two features can help traders achieve better overall results.

In order to become successful, traders have to learn, and learn a lot: fundamental factors, technical analysis, asset types and so much more. However, basics should not be discarded, as well. In order to trade in a proper manner, the trader has to set up his deals properly. Choosing an adequate chart type is one of the initial steps of this process.
Line
The most basic and also the easiest way to display data on the screen.
This chart type is easy to understand and use in trading. However, its performance can be lagging behind its more advanced counterparts when it comes to long-term trading and application of technical analysis tools (as most of them use candles for the purpose of calculation).
Advantages:
  • Visual simplicity of the line chart makes it better suited for short-term trading.
  • Line chart makes the graph look simple by showing less (no information about opening, high and low prices). It is, therefore, good for newcomers.
Disadvantages:
  • Not the best chart type for in-depth analysis, especially on longer time frames.
  • This chart type doesn't demonstrate price gaps.
    Candles
    By far the most popular chart type.
    The majority of professional traders stick to it, as it provides additional opportunities for technical analysis.
    Candles might need just a little bit of explanation. With a Line chart everything is quite simply: the price goes up and down, and the trend line will follow it. Candles work differently. Each candle displays not a moment but a period of time and will therefore have the opening price (the price at the beginning of that period), closing price (the price at the end of it), as well as high and low prices. The distance between opening and closing prices is the body, thin outliers are called shadows. The candle will change its color based on the performance of the asset: should the closing price exceed its opening price, the candle will turn green, should the closing price be below the opening price, the candle will turn red.
    Bars
    are an alternative take on the Candlestick chart.
    Looking a little bit different, they utilize the same principles and works in the same way. This chart type also displays opening, closing, high and low prices. Just like candles, it will turn red if the price decreases over the period of one bar and green should the price increase over the same period.
    Advantages:
    • Demonstrates all the necessary information (just like candles) but does it a little bit differently.
    • Makes the gaps on the market visible.
    Disadvantages:
    • Price movements that take place within the trading period are not displayed. Smaller time frames may be required for additional information.
      Heikin-Ashi
      A modified candle chart.
      It smooths out the price action and makes it easier to spot a strong trend, at the same time eliminating the price noise. The chart you get in the end is smooth and elegant. Due to the way it is calculated, Heikin-Ashi is even used by some traders to predict the future price of the asset without the use of additional technical analysis indicators.
      Advantages:
      • Good for long-term trading.
      • Helps to estimate the future price of the asset without additional indicators.
      Disadvantages:
      • Can be hard to use on shorter time frames.
      • There is time and place for each chart type and all of them should be used respectively.
        There is time and place for each chart type and all of them should be used respectively.
        Time Frame
        Choosing the correct time frame is a half of success
        Choosing the correct time frame is also important when trying to achieve certain results in trading. It is equally wrong to open a long-term deal on a short-time chart and open a short-term deal on a long-term chart.
        The time frame should match the duration of the deal the trader is about to open. Ideally, the time frame should be longer than the duration of the deal the trader is entering but not by a lot. The reason for this is the following: the trader should be able to analyze past performance of the asset at hand and therefore needs the information about past prices. However, looking too far into the past can sometimes be counterproductive, as information for certain asset types can quickly become outdated. When the time frame is too short, there is no possibility to conduct in-depth analysis and, therefore, predict the future price performance. When the time frame is too long, there is too much irrelevant information that can easily get the trader distracted.
        By properly using these two seemingly unimportant tools traders can greatly improve their overall performance and get a deeper understanding of the nature of the financial markets. It is, therefore, important to learn how to use different chart types and set up the time frames before trading on a real account.
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