Evolution of Charts

Line Charts – Technical Analysis with Candlesticks


Jul.19.2013

Ancient traders (from the past decades) did their technical analysis mostly on Line Charts, which look pretty boring comparing to the modern charts. Line Charts are also called the First Generation Charts, and can be compared to first generation telephones which didn't have 'many functions and were only good for making phone calls, and didn't even show the caller’s ID.

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What do Line Charts Represent?

A line chart only displays the closing prices of the market. That means at any given time period, you can only know where the pair was dancing at the end of that time period and wouldn't know their adventures and movements on the dance floor during that time period.

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A line is drawn from one closing price to the next closing price, and you can see the general movement of a currency pair over a period of time.

Line Charts Only Show Closing Price Line Charts Only Show Closing Price

In the above hourly line chart of euro-dollar, at the end of every hour, the pair was dancing on the red dot, which is the closing price; In other words, every red dot shows the price of the pair at the end of the hour.

Pros and Cons of Line Charts

Line charts are good for simple and general overview of the market. They can also be used for very short-time frames such as 5 minute charts, because the closing and opening prices typically close.

These charts are also used by futures and options traders who only care about the closing price.

However, when it comes to a thorough, IDDA based technical analysis, they wouldn't give us enough room for explore.

 

That is why, in order to overcome this problem, the next generation charts were invented. The bar charts, followed by candlestick charts.

 

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