The Technical Analysis Chart- Bar Chart And Candlestick Chart
Because of the limitations of the line chart, the bar chart was discovered. The bar charts displayed the open, high, low and close of the stock in a time period and thus were a better alternative to the line chart.
- The bar has three components. This is the central line which connects the high of the stock to the low of the stock
- The left mark is the open price
- The right mark is the closing price of the stock.
Thus the bar chart allowed plotting the four different price points on the chart. Thus a single bar represented what the price did in a certain time period.
When the close of the stock is higher than the open then this means that the bar is bullish. When the close is lower than the open then the bar is bearish. There was also color coding to distinguish the bullish form the bearish bars. The range of the candle is the difference between the high and the low of the bar.
When the range of the bar is high then the line is long. When the range is less than the central line is short.
The bar chart thus plots all the four price points; however, it still was rejected by many because it lacked a visual appeal. This makes it a disadvantage because it did not let one spot the patterns easily with the naked eye. The complexity also started to increase when there was a need to analyze many charts at a time.
This is why the bar chart was rejected by many. However, there are some traders who still use bar charts to analyze the trades. This led to the Japanese candlestick charts and the candlestick chart is what is used by most of the technical analysts today.
History of the candlestick chart
Continue reading as its name suggests traces his origin to Japan. The earliest known candlestick chart was used by Homma Munehisa in the 18th century. He was a merchant.
The candlestick has been used for a very long time in Japan. The western countries did not know about it. This was discovered accidentally in the 1980’s by Steve Nison and introduced it to the world. He was the first to have written a book on the candlestick charts.
The pattern that you will come across on the candlestick charts mostly use Japanese names.