In financial trading we use 3 basic types of charts. There’s this simple line chart. It’s best to see a trend. We create them by charting lines between either opening or closing prices of an asset, which we measure at distinct intervals – every hour, day, or 5 second period.

Then, we have bar charts and candlestick charts, which provide us with a lot more valuable information. The bar chart ALSO looks at a specific period – let’s say an hour. It tells us what were the highest and lowest prices achieved during that hour. AND these little handles here show us what was the opening and closing price during that period. The opening is on the left and the close is on the right. Here, we can see a rising bar since the left is lower than the right. And here it’s falling. If the entire horizontal line is long, we had a pretty volatile period here. If it’s short – relaxed. We can also almost predict the next candle; for example, a close that far below the high could indicate we’re about to see a reversal from an uptrend to a downtrend.

Candlestick charts are a bit more popular – perhaps because they’re color-coded: Green, blue and white usually for a rising candle, and red or black for a falling trend during the time period. They were invented 300 years ago by Japanese rice merchants. Here, the body indicates opening and closing prices, and the wicks on either side show the period’s high and low. Now, how long each candle represents is determined by the platform. Here you can select anything from a minute to a month. In MT5 you can also right-click on a chart and see how many different period lengths we get – 23 in all.

When should you look at the shorter time frames and when the larger? Well, a lot of things determine that: how long do you expect to keep a position open? How volatile is the market? You want to examine how the market reacted in the past to a specific stimulus. As in line charts, you’ll be looking for patterns; but here you’re not just looking at a rise or a fall but actual BEHAVIOUR!

The Japanese developed various patterns they looked out for – Dojis and more complex combinations of 2 or more candles. But we also have a host of technical indicators that we can execute at the push of a button. What they do is apply complex formulas to the data the candles represent and extrapolate patterns.