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What are price charts?

Price charts depict a range of prices over a specific timeframe. As with most charts, they run over a Y and an X axis, with time being the Y and price being the X.

The below is a price chart of GBP/USD (British Pound vs US Dollar) in August 2018. It shows a high price point of 1.3140 on 1 August, falling to a low of 1.2980 on 3 August 2018,  before closing at 1.300028 on that same day.

This chart is set to a 15-minute time period. Common timeframes for price charts are:

  • Tick (shows each price movement)
  • 1 minute
  • 2 minute
  • 3 minute
  • 5 minute
  • 10 minute
  • 15 minute
  • 30 minute
  • 1 hour
  • 2 hour
  • 4 hour
  • Daily
  • Weekly
  • Monthly

 

What timescale is best for Technical Analysis?

There are no hard and fast rules as to what chart time period is best. It depends on what you’re trading, your own trading preferences, personal circumstances … the list goes on. I have traded on the lower timeframes during my time and I now find anything less than 5 minutes to be extremely challenging and distracting. The higher timeframes of 4 hours, Daily are equally hard work in my view, but if you’re in an established trade, they can be useful for deciding whether to stay in it or not, as often I find I can get a clearer picture by stepping back from the action. I find the shorter timescales of 5 minute and 15 minute are best for deciding when to enter a trade.

Price Chart Analysis

 

There are several words used for those who use price charts for Technical Analysis. They are commonly called Market Technicians, Technical Analysts or Chartists. Charts are available for a multitude of instruments from Currency Pairs as shown here, through to Stock Indices, Shares, Bonds, Cryptocurrencies and more.

Charts provide an excellent graphical illustration of the historic performance of a particular security. Often, charts show the impact that global events can have on a security, such as on the above chart. You’ll notice there’s a rapid price movement occurs at midday on 2 August 2018. This is when the Bank of England (BOE) announced a 0.25% increase in the UK’s interest rate from 0.50% to 0.75%. The market rallied briefly – seconds only – before reversing and falling 120 points within the space of 45 minutes. If you had been trading this it could have made your Forex trade very profitable that day.

  • At £1/point, you would have made £120
  • At £2/point, your profit would have been £240
  • At £5/point, your profit would have been £600
  • £25/point, your profit would have been £3000

I’m sure you can do the maths going up from there, and this is why Currency Trading is hugely popular; £3000 for 45 minutes’ work? Very nice. But bear in mind, as discussed in our Guide to Trading, this blade cuts both ways. For every winner, there’s a loser. That could be £3000 against you if you’re wrong and not using sufficient Risk Management.

Types of Price Chart

There are several types of chart to use, and again personal preference is largely what it comes down to. For Technical Analysts, the most popular types of chart are Candlesticks and OHLC charts.

The charts below are all of the same security in the same time frame.

Candlestick Chart

So named because the price charts look like small candles, with wicks at the top and bottom. Red signifies price falling during that period, green means the price rose.

 

OHLC

Open High Low Close charts (OHLC): the Open is a tick mark on the left side of the vertical line (bar), the High is the top of the Bar, the Low is the low, and the Close price is shown by the tick on the right of the bar.

As with Candlestick charts, red signifies price falling during that period, green means the price rose.

 

Line Chart

A simple explanation for this one. No colours needed, this is a simple pictorial representation of how price behaved.

 

Mountain Chart

Almost identical to the Line Chart above, a Mountain chart is little more than a coloured in Line Chart.

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Matt Vann

Matt has been trading for over a decade, trading with various forms of Futures, Spread Betting and occassionally, CFDs. He'll trade limited markets including Indices, Currencies and selected Commodities such as Silver and Natural Gas.

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