Today we deconstruct the different types of charts that can be used in Technical Analysis: the bar chart, the candlestick chart, the Point and Figure (P&F) chart and the line chart.  

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Data needed to construct most charts: Open, high, low, close (OHLC), volume  Line chart: just connects closing prices, doesn’t put volume (in old day), doesn’t show intraday movements - Closing price is important for funds performance… determines the next day - Used to study long term trends. “The economists’ chart”. More frequent data leads to detailed,  cluttered charts making trend less obvious, less frequent data.  - Advantage: Easy to construct and maintain.  - Disadvantage: Gives little information, exact time or trend change can be unclear.  Bar chart: left tick represents open, right tick = close. Usually has volume.  Nowadays, tradingview has the colours, but normally they don’t.  Best bar charts are OHLC, include the open price. Each interval represented by one bar. Range = difference between high and low. Advantages: HLC can give you a better sense of direction. More versatile, volume usually included. Disadvantage: Harder to maintain and requires more space if done by hand.

Japanese candlesticks : Used in Japan in 16-1700’s. Brought to North America by Steve Nison in 1985. Include HLC, and always Open price. Up-day = white. Down-day = black.  Real body: is the rectangular box formed by open and close price. (look like candles) Shadow = just line of the top and bottom of candle. Price extremes of the session. Look like wicks. Advantage:  More visual, positive and negative easily seen. Disadvantage: Harder to calculate and maintain by hand, patterns must be studied.  

Point and Figure (P&F) chart: ignores time, volume…    ONLY focus is price (everything else is considered noise), for purist technicians. Mostly used in continuous markets like commodities.  AND in a liquid market X represents price moves up. O = price goes down. XXXXXX all the way until it goes down. Then, you switch column and do OOOO until the direction changes. Used in liquid and continuous 247 market Can be constructed using intraday trading data. Volume is usually excluded. No time plotted along the horizontal axis, but time can be annotated. Box size:   -$ amount representing one box           - The smaller the box size the more sensitive the chart Reversal size: Column of X’s change to O’s or vice versa when the price reverses by this amount ($ amount needed to record X or O) Price is plotted only when actual price of the box is touched or traded through. As box size increases price history becomes smaller and squeezed to the left. Box/reversal size may be adjusted if price greatly increases decreases as over time. 3-point reversal is the most useful method of P&F charting, yielding the best buy & sell signals. Advantage:  Information is compressed; resistance and support levels are easier to spot.  They better price targets for buy/sell signals Disadvantage:  They do not use time and volume as a consideration.   #TechnicalAnalysis