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    Chart Types How-To Guide

    We know that the financial markets can often seem like a labyrinth, filled with countless data points and complex financial instruments. In this maze, charts stand out as indispensable tools to simplify the analysis and comprehension of market dynamics. At Wallstreet.io, we believe in empowering our users with knowledge and practical insights, and this guide is designed to do just that.

    From the classic Candlestick Charts to Heikin-Ashi and many others, this guide covers a wide range of chart types to help you understand and leverage the different visual representations of price action. Each chart type offers a unique perspective, revealing distinct aspects of market behavior.

    Let's dive into some expert tips on how to leverage the unique features and benefits of Chart type.

    Regular Chart types

    Candle

    Like bar charts, candle charts represent OHLC, except in the form of colored rectangles called candles. The candle is shaded green when the open is lower than the close. When the open is higher than the close, the candle is shaded red. If the open and close are the same, a thin horizontal line segment is drawn at that price (this type of candle is called a “doji”). Each candle has a “wick” that extends above and below the candle to indicate the high and low, respectively.

    How to use the Candle charts:

  • Familiarize yourself with the elements of a candlestick. Each candlestick consists of a body and two wicks (or shadows): an upper wick and a lower wick.
  • Understand the meaning of different candlestick colors. Typically, green or white candles represent bullish (upward) price movements, while red or black candles indicate bearish (downward) price movements.
  • Observe the length of the candle’s body. A longer body signifies a more significant price difference between the open and close, indicating stronger buying or selling pressure.
  • Analyze the length of the upper and lower wicks. Longer wicks indicate higher price volatility, while shorter wicks suggest more stable price movements.
  • Identify specific candlestick patterns, such as dojis, hammers, shooting stars, or engulfing patterns. These patterns provide insights into potential market reversals or continuation signals.
  • To validate trading signals, combine candlestick analysis with other technical indicators, such as moving averages, trendlines, or support and resistance levels.
  • Pay attention to the sequence and formation of candlestick patterns. Look for patterns that occur at key support or resistance levels, trendline intersections, or Fibonacci retracement levels for stronger confirmation.

    • Candlestick charts are widely used and versatile. They provide valuable information about market sentiment, trend direction, and potential price reversals.

    Bar

    Bar charts consist of vertical lines sandwiched between two shelves. One bar is created for each interval (period) on the chart. Each bar represents the OHLC (open, high, low, close) for the period. The top and bottom of the vertical line represent the high and low for the period. The left shelf is the opening price while the right shelf is the closing price. The bars are a single color.

    How to use the Bar charts

  • Understand the components of a bar on the chart. Each bar represents a specific period (e.g., day, week) and consists of four key data points: the opening price, closing price, highest price (high), and lowest price (low).
  • Observe the vertical line or "stick" on each bar. The top of the line represents the highest price reached during the period, while the bottom represents the lowest price.
  • Identify the horizontal dash on the left side of the bar. This dash represents the opening price of the period.
  • Notice the horizontal dash on the right side of the bar. This dash represents the closing price of the period.
  • Observe the length of the vertical line. A longer line indicates a wider price range during the period, implying higher volatility.
  • Analyze the relationship between the opening and closing prices. If the closing price is higher than the opening price, it indicates a bullish period. Conversely, if the closing price is lower than the opening price, it indicates a bearish period.

    • Bar charts are also widely used for technical analysis due to their simplicity and effectiveness.

    Colored bar

    The Colored Bar chart draws a bar chart with the bars colored to indicate price action. The algorithm is the same as the Bar chart.

    Line

    A line chart consists of segments that connect at the close price for each time period. The line is a single color. Any value in the price data that has a null value for close will result in a gap within the line.

    How to use the Line charts

  • The Line chart represents the closing prices of the selected time frame. It connects the closing prices with a line, providing a visual representation of the price trend over time.
  • Pay attention to the slope of the line. An upward slope indicates a bullish trend, while a downward slope suggests a bearish trend.
  • Identify support and resistance levels by observing the areas where the line touches or intersects with horizontal lines or other chart patterns.
  • Analyze the steepness of the line. Steeper slopes indicate stronger price movements and potential momentum shifts.

    • Line charts are simple yet effective tools for identifying price trends and key levels.

    Vertex Line

    The Vertex Line chart is composed of Scatterplot points connected with a Line Chart.

    Step

    A Step chart is a line chart in which points are connected by horizontal and vertical line segments, looking like steps of a staircase.

    Step line charts are used when it is necessary to highlight the irregularity of changes: for example, when changes in tax rates or interest rates are visualized. While the line chart emphasizes the trend in data over time, the step line chart draws attention from the trend to show periods with no change and emphasize the exact time of each change as well as its magnitude.

    How to use the Step charts

  • The Step chart represents price movements using horizontal and vertical lines, creating a step-like pattern.
  • Observe the vertical lines on the Step chart. Each line represents a specific period (e.g., day, week) and connects the closing prices of adjacent periods.
  • Identify the horizontal lines on the Step chart. These lines represent the price levels where the closing prices change direction.
  • Pay attention to the structure of the Step chart. When the closing price remains constant between periods, the chart moves horizontally. When the closing price changes, the chart moves vertically.
  • Analyze the steepness of the vertical lines. Steeper lines indicate more significant price movements and potential momentum shifts.
  • Identify support and resistance levels by observing the horizontal lines on the Step chart where price reversals occur.
  • Practice analyzing Step charts o refine your skills in recognizing price patterns, support and resistance levels, and chart formations.

    • Step charts can be useful for identifying price trends and potential support/resistance levels.

    Mountain

    Mountain charts (sometimes called area charts) are Line charts with a shaded section that extends to the bottom of the chart. The result is a chart that looks like a mountain.

    Baseline

    A baseline chart draws a Line chart that oscillates across a dotted baseline. The area above the baseline is shaded green, and the area below the baseline is shaded red. The baseline initializes to the leftmost closing value on the chart but can be adjusted by dragging the handle located on the right side of the chart. This chart style is meant to highlight the positive and negative distance from the set baseline.

    It is typically used for intraday charts where the left side (baseline) is set to the opening of the market day.

    Hollow candle

    Hollow candle charts are a special type of candle chart that displays additional information and changes the meaning of the colors. In a hollow candle chart, a green candle occurs when the closing price is higher than the prior bar’s closing price. It is red when the closing price is lower than the prior bar’s closing price.

    The candles are either filled or hollow based on the price action within the candle. Hollow candles are drawn when the close is higher than the open (upward intra-session price action). The candle is filled when the close is lower than the open (downward intra-session price action). If the close is the same as the open, only a gray horizontal line is drawn.

    Volume candle

    A volume candle chart is a hollow candle chart where the width of a candle varies to indicate volume. Each candle’s shading and fill follow the same conventions as those in hollow candle charts. Wide candles indicate high volume while narrow candles indicate low volume.

    Scatterplot

    The Scatterplot chart draws a single dot at every closing value for each time period and does not connect them. It is often used to visualize the relationship between two variables or data points.

    Each dot on the chart represents a specific data point, typically displaying the relationship between an independent variable (x-axis) and a dependent variable (y-axis).

    Scatterplot charts are useful for identifying correlations, patterns, or outliers in the data.

    Histogram

    The Histogram chart represents price action with bars from the bottom up, and looks pretty similar to the Volume indicator.

  • Each bar represents a specific period, such as a candlestick, and its height corresponds to the price range within that period.
  • Observe the height of each bar to determine the price range.
  • Analyze the overall shape and pattern of the histogram bars to identify trends, price volatility, and potential support and resistance levels.

    • Aggregated Chart types

    Heikin Ashi

    Heikin Ashi charts are time series charts that resemble candle charts. In a normal candle chart, each candle is calculated independent of the other candles. However, in Heikin-Ashi charts, the candles appear to link together because of how their OHLC values are calculated:

    ● Open = the mean of the previous open and the previous close

    ● High = the maximum of the current high, open, and close

    ● Low = the minimum of the current low, open, and close

    ● Close = the mean of the current open, close, high, and low

    Upward trends are indicated by green candles with wicks on top, but almost no wick on bottom. Downward trends are indicated by red candles with wicks on the bottom and almost no wick on top. Reversal points are indicated by candles, red or green, with small bodies and wicks on top and bottom. This chart type can spot trends more clearly and easily than regular candle charts.

  • The Heikin-Ashi candles use modified calculations to smoothen price movements and provide a clearer trend picture.
  • Identify the color-coding of the Heikin-Ashi candles. Typically, green candles indicate a bullish trend, while red candles represent a bearish trend.
  • Pay attention to the length of the candle bodies. Longer bodies indicate stronger buying or selling pressure, while shorter bodies suggest indecision or consolidation.
  • Notice the absence of wicks or shadows in Heikin-Ashi candles. This feature helps filter out noise and focus on the overall trend direction.
  • Analyze the patterns formed by Heikin-Ashi candles, such as dojis, hammers, or engulfing patterns, to identify potential reversals or continuation signals.

    • Kagi

    Kagi charts appear as vertical bars connected by small horizontal segments at right angles. They are independent of time and progress forward based on price action.

  • Identify the thick green lines, known as yang bars, which indicate that the price has broken above the previous yin bar's high price.
  • Identify the thin red lines, known as yin bars, which indicate that the price has fallen below the previous yang bar's low.
  • Note that the colors of the Kagi lines do not directly communicate upward or downward trends as they do in other chart types.
  • Understand that Kagi bars move upward or downward based on closing prices and change direction when a reversal limit is reached.
  • Define the reversal limits, which are input by you as a fixed percentage of the price.
  • For example, if you have a stock valued at $10 and you set a reversal of 10%, a cumulative $1 movement in the opposite direction will break the current trend and cause a reversal.
  • Customize the Kagi chart settings according to your preferences. Use the AUTO SELECT button in the customization dialog box to set the reversal limit to one of two defaults: 4% for daily charts and 0.4% for intraday charts.

    • Line break

    Line break charts appear as vertical bars that ascend and descend. These charts are time independent and are determined only by price action. Ascending bars are colored green and indicate upward price action. Descending bars are colored red and indicate downward price action.

    Line break charts are constructed by looking at the close of a bar and comparing it to a previous bar’s close; which bar it is compared to is determined by you. If the current bar’s close is higher than the one it is being compared to, a green ascending bar is drawn. If the current bar’s close is lower than the one that it is being compared to, a red descending bar is drawn. If the current close is the same, or if the price does not move enough in one direction or the other to signify a reversal, then no bar is drawn.

    Line break charts default to a value of three, meaning that it compares the current bar’s close to the bar that came two periods earlier.

    Renko

    Renko charts appear as a series of equally sized blocks stepping diagonally upward or downward. This chart type, developed by the Japanese, measures price movement independent of time. The objective is to clearly see the market’s directional movement, persistence, and magnitude. Renko charts are constructed from a series of bricks placed sequentially upward using green blocks or downward based on user-defined fluctuations in price. The user can set the Brick Size using the Set Range property. Once price moves more than the user-defined range, a new brick is added to the chart in the corresponding direction.

    How to use the Renko charts:

  • Identify the Bricks: In a Renko chart, upward price movements are represented by green (or white) bricks and downward price movements are represented by red (or black) bricks. The color of the bricks directly communicates upward or downward trends.
  • Understand the Brick Formation: A new brick is drawn in the chart only when the price moves by a predetermined amount, either upwards or downwards. This amount, referred to as the "brick size", is set by you.
  • Define the Brick Size: The brick size represents the minimum price change required for a new brick to be drawn. For instance, if you set the brick size to $1 for a particular stock, only a price movement of $1 or more would add a new brick to the chart.
  • Identify Trend Direction: Multiple bricks of the same color indicate a trend in that direction. For example, several green bricks in a row represent an uptrend, while several red bricks indicate a downtrend.
  • Spot Trend Reversals: A trend reversal in a Renko chart is signaled by a brick of the opposite color. If a green brick is followed by a red brick, it indicates that a downtrend has started, and vice versa.
  • Customize Your Renko Chart: The customization settings on Wallstreet.io allow you to set your preferred brick size. Experiment with different sizes to find the one that suits your trading style and strategy the best.
  • Combine with Other Indicators: Renko charts can be effectively used in conjunction with other indicators such as Moving Averages or Relative Strength Index (RSI) to confirm trends and potential reversal points.

    • Range bars

    Range bar charts appear as a series of equally sized candles. A new bar is formed when the price moves outside of a given defined range, which is configured by you in Set Range.

  • Each bar represents a specific price range, rather than a fixed time period.
  • Identify the bullish and bearish bars on the chart. A bullish bar forms when the price moves up by the range size, and a bearish bar forms when the price moves down by the range size.
  • Analyze the number of bars required to change the direction of the chart. This is determined by the range size. For example, if the range size is set to 10 points, a reversal will occur after the price moves 10 points in the opposite direction.
  • Pay attention to the momentum and strength of the trend indicated by consecutive bars in the same direction.

    • Point and figure

    Point and figure charts display an X for upward price action and an O for downward price movement. The X and O represent a specific price increment, known as the box size which is configured in properties by you. The objective is to capture directional price trends without the impact of time. A new column is formed when price reverses a set number of boxes, that is a multiple of the box size. The reversal value is configured in properties by you.

  • The box size represents the price range required to form a new X or O column, and the reversal amount determines when a reversal occurs.
  • Choose the time frame that aligns with your trading or investment goals, such as daily, weekly, or intraday.
  • Understand that Point and Figure charts are independent of time and focus solely on price movement.
  • Observe the construction of the Point and Figure chart. It consists of X and O columns that represent price increases and decreases, respectively.
  • Identify the bullish and bearish columns on the chart. A new X column is formed when the price increases by the box size, while a new O column is formed when the price decreases by the box size.
  • Analyze the reversal points on the chart. A reversal occurs when the price reverses by the specified reversal amount. This causes a new column to be formed in the opposite direction.
  • Pay attention to the number of X or O columns required to change the direction of the chart. This is determined by the reversal amount.

    • Closing thoughts

    Understanding various chart types is essential for conducting effective technical analysis on our platform. Each chart type offers unique features and insights into price movements, trends, support and resistance levels, and potential trading opportunities.

    By following the step-by-step guides provided, beginners can gain confidence in using these chart types to analyze market data. It’s crucial to consider factors such as time frames, price increments, reversal limits, and customization options to tailor the charts to individual trading styles and goals.

    While the guide has provided a solid foundation, it is important to continue learning and practicing with real-time market data to enhance chart reading skills and refine analysis techniques. Combining chart analysis with other technical indicators, risk management strategies, and market knowledge will further strengthen the decision-making process.

    Ultimately, choosing the most suitable chart type depends on your preferences, trading style, and the specific market being analyzed. By incorporating these chart types into your technical analysis toolkit, you'll be better equipped to navigate the complexities of the financial markets. Remember, practice and continuous learning are key to mastering the art of chart analysis!