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What is the chart?

Your start to your journey into the world of chart technology

Table of contents

The historical background

Stocks, bonds and futures contracts have been traded for over 500 years. Since the end of the 15th century, prices have been rising and falling, so to speak.

The first futures transactions were carried out on marketplaces as early as the twelfth century. As the number of market participants increased, so did the trading volume and rules for trading became necessary. This is how the term stock exchange came into being, which has its origins in the “van der Beurse” family.


In order to be able to visually display the price changes of stocks, for example, diagrams were developed. A chart represents the course of the price visually and can be displayed in different ways.

Different types of representation

A chart can be displayed in different time units. Each representation has its advantages and disadvantages and its specific area of application.

For example, if you combine the closing prices of the last 30 days, a 30-day chart is created. There are also different chart types to make price trends visible. Such as the line chart, the candlestick chart or even more exotic forms such as the point & Figure chart.

Chart display with a timeline

Bar charts, candlesticks, line charts and HeikinAshi

In chart displays with a time axis, a candle or bar always represents a period of the selected time frame. A candle in the daily chart represents the entire trading course of the day, while a candle in the one-hour chart only shows the trading course of one hour. The chart display is not calculated based on price, but rather based on time.

The following image shows the S&P500 in the daily chart. A candlestick therefore represents a trading day:

SP 500 daily chart Ai.png

But there are also chart representations that completely forego the time component and only take price movements into account for the calculation, regardless of the time. An example of this would be the Renko or the Point & Figure chart. We'll look at these advanced types of representation later and are irrelevant for now.

The bar chart

The bar chart used to be the most commonly used display method, but it is still popular in daily charts. A bar consists of one vertical and two small horizontal lines. The opening and closing prices as well as the high and low of the corresponding period of time can be read.

In addition to the red/green coloring, the bars are also often colored in a black/white scheme. A bar is colored black if the closing price is lower than the opening price. On the other hand, a bar is colored white if the closing price in the time period (timeframe) is higher than the opening price. 

A bar chart from practice is shown below. It shows the course of the SP 500 in the daily chart. This means that one bar represents one day's trading range.


The candlesticks

First used in the 18th century by a Japanese travel trader named Munehisa Homma, the candlestick chart is the Japanese form of the bar chart. 


Excursus: Historical background

Munehisa Homma was the son of a wealthy family of rice traders. At the age of 26, he took over the family business and was already trading on the rice exchange. Rice was the epitome of the Japanese economy at the time and even served as a substitute currency. Until 1710, rice was exchanged for goods at the rice exchange and the rice farmers paid the feudal lords their taxes with rice. They then sell the grain to the traders. Some feudal lords needed money even before they had collected the harvest from their farmers, and department stores began to accept promissory notes. At the rice exchange in Osaka, the Dojima, there was a brisk trade in these coupons and By the mid-18th century, Japan was trading coupons for nearly four times the amount of rice it was producing.

As a trader, Homma knew that information about the harvest situation was worth its weight in gold in this business. So he developed a communication system consisting of a chain of people who used colored flags to communicate information about the harvest from rooftops and towers at a certain time of day.

 For years Homma had tried to fathom the secret of market movements. In his mind, he developed a visual system of symbols with which he could document price developments and at the same time recognize patterns that repeated over and over again and could thus be used for his trading strategies. That was the birth of the so-called candlestick charts, which are still the language of the financial markets today and are essential components of classic chart analysis. He recognized patterns that allowed him to predict future price movements, studied weather data, analyzed historical prices and studied the psychology of market participants.

 Homma became the richest man in Japan and the emperor's financial advisor, who elevated him to the nobility as a samurai. It was only 200 years later that the trading strategy became known in the West thanks to Steve Nison and his book “Technical Analysis with Candlesticks”.Munehisa Homma is considered one of the most successful traders of all time.


Like the bar chart, the candlestick chart shows exactly the same information - the opening and closing prices, as well as the high and low. However, they differ in their graphical representation. The opening and closing prices form a thick candlestick body. The lines above and below the body are called seal and fuse. In addition, various information and patterns can be derived from the candle shape and the combination of two or more candles.


In the image above you can see a DAX chart in the daily view. A candle represents the trading range of one day.


The time frame

A time frame refers to the different time units in which a chart can be displayed. The most well-known time frame is probably the daily chart. In the daily chart, a candlestick in the candlestick chart represents the trading range of one day. The same applies to the bar chart, here too, a bar in the daily chart would represent exactly one day.

Other widely used time frames include the monthly chart, the weekly chart or the hourly chart. Day traders like to stay in the one minute to fifteen minute chart. Basically you can display any time frame, for example a candle could represent 9 minutes. The smallest time frame is the tick chart.

The line chart

The line chart is probably the simplest way to display the chart. It connects the continuous closing prices, without taking the opening price, high and low into account. By connecting the closing prices, a continuous line is created.

It is widely used, but is not suitable for technical analysis because it hides important information such as the trading range and therefore volatility.

Line chart_drawing area 1.png

Gaps (price gaps)

Gap refers to price gaps in the chart where no trading has taken place. So if the current low is higher than the previous high or the current high is lower than the previous low. Price gaps often occur when there is news relevant to the chart.published earth

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