Japanese Candlesticks VS Lines: How to Determine the Right Type of Chart?

It's time to resume our course. During the forced break to replenish the piggy bank of exchange knowledge, you, dear friends, have tried yourselves as fundamental analysts? Learned trade on the news?

Now it's time for technical analysis. For some people, working with charts will seem simpler than the intricate science of enterprise analysis. You do not need to make a difficult choice - choose the method of market analysis that is convenient and most understandable to you. Or combine the best of different methods of predicting the exchange price. Let me remind you that for our cross-section of knowledge we use the program of "Beginner" course of the training center of the FINAM company.

Type of chart in the technical analysis of the stock market

The first question we are going to deal with, starting with the topic of "technical analysis": how to determine the type of graph?

There are quite a few of them - "Japanese" and "colored" candles, line charts, "tic-tac-toe", "Renko", "Kagi". As for exotic charts that do not take into account the time scale, beginners should put them aside. For now, you need to get visually accustomed to changing trends by season and at different periods of market life (closing of registers, reporting seasons).

The choice has shrunk, but what to choose - candles or lines?

They say that lines - weaponry speculatorsbecause they don't have time to keep track of all four main price parameters. Linear charts based on closing prices are the most important, because the closing is the most "considered" price of the interval. In fact, one can argue with this - intraday traders trade on the signals of technical indicators, and do not think much about local spikes or their exclusion.

Linear charts have a trap. Take a look at the chart below.

Linear chart 1. "Gazprom" (daily slice)
Linear chart 1. "Gazprom" (daily slice)

The highlighted area is January 22, 2008. Judging by the line chart - a day like a day. An unfamiliar local low was formed here, that's all. But let's look at the cut, presented in the form of Japanese candles:

Japanese candlestick chart 2. "Gazprom" (daily slice)
Japanese candlestick chart 2. "Gazprom" (daily slice)

In fact, on that day, Gazprom's shares flew more than 14.7% from the session low to the session high. And afterwards, as you can see, the levels obtained on that day were "traded" by prices for several months. Such a day in the market did not happen by chance. On January 22, 2008, the U.S. authorities lowered the U.S. Federal Reserve rate by 75 basis points, instead of the standard 25. Oh, what began there! At first, traders thought America was "washed out", and our securities tanked on 10-20%. "Gazprom" was no exception. Those people who trade only occasionally and watch line charts, understood the events of the day blurred. And the hint on the chart in the form of such unusual candle they did not have.

How to use different types of stock charts correctly

Let's make it a rule:

1. When using line charts, at least once a week you should look at the Japanese candlesticks.

2. be careful with securities of companies involved in reforms and restructurings. On that day described above, the highest volatility (33.5%) was not in Gazprom, but in the securities of RAO UES, which were at the mercy of not only external, but also global corporate changes.

Diagram 3. RAO "UES" (daily slice)
Diagram 3. RAO "UES" (daily slice)

3. "Never Say Never. Americans are pedants, they have macroeconomic statistics for every day, but force majeure even hits them.

We are not going to postpone the continuation of our lessons, and next week I will tell you about which chart period to choose as a speculator, and which to choose as a speculator. to the investor. In the meantime, you have a field for new research. Try to find more examples of what market movements line graph lovers might have missed.

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