A technical chart shows a unique pattern or formation of commodities or stocks which gives an indication to the trader about the probable future movements in price. These patterns can be used to interpret reversals and current trends in the market. To make decision making, technical analysis is an effective tool.
Technical analysis is considered as a tool for trading which helps to evaluate the past price movements and attempt to forecast future movement by analyzing statistics gathered from past trading activity. Different Charts involving various structures are prepared with commodity information like volume and prices. This is based on analyzing current demand and supply of commodities, indices, futures or any tradable instrument.
The Line chart is considered as the simplest form of a chart as it shows only the closing prices for each time segment. The line is formed by connecting the closing prices over the time frame.
The Bar chart is made up of a series of vertical lines that represent each data point. This chart shows the changes in price for each time segment. The vertical line represents the high and low for the trading period, along with the closing price. A bar that is colored red signals that the commodity has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).
The Candlestick chart is more visually appealing when compared to the bar or line chart. The candlestick chart also has a vertical line showing the periods trading range. The formation of a wide bar on the vertical line, which illustrates the difference between the open and close. The colors play a vital role in briefing the happenings during the trading period.