Types of charts in Forex: essence, advantages and disadvantages (part 1)
MT4 is a fairly functional platform, if you close your eyes to the fact that it can sometimes get confused and the fact that the developers stubbornly do not want to eliminate the bugs in it.
The platform toolkit can be conditionally divided into several parts:
- Technical analysis indicators.
- Lines, shapes, levels.
- Additional instruments: grid, volumes, Depth of Market analogue, etc.
- Charts and timeframes.
And if everything is clear with timeframes or indicators, charts in MT4 should be considered separately.
How to use charts in MT4
A chart in MT4 is a type of display of the nature of price movement. It would seem, what options are generally possible here? The price is the price, which means that you need to build a chart by points. Yes, this is the classic plotting, but the MT4 developers went further – they offered several more options, radically different from each other precisely by the formula for calculating points for plotting. There are three of them in MT4 and MT5 – a line, candles and bars. This is not to overload the terminal with functionality. But there are additional graphs that are worth the attention of those who are ready to learn something more than basic terminology.
- You can install additional charts in MT4 in the same way as installing indicators. In fact, an additional chart is an indicator. You overlay it on the current chart, and in the properties specify the color of the candles / lines – white, that is, invisible. However, you can overlay non-standard charts with standard ones. If you don’t get confused. Need help finding templates for indicators / charts, which will be described below, write in the comments. We will definitely help!
- Line chart… On the chart, this is a line drawn at the closing price. For example, if the M1 timeframe is set, then the plotting point is the price that is fixed at the end of the minute. And for a trader, this is the price at which he could sell the asset (Bid), while the purchase price of the asset is not displayed on the chart by default and is located higher. The distance between the buy and sell prices is the spread. In other words, you buy an asset at the price indicated on the chart + spread.
- Advice… Confused about which price is displayed on the chart, go to the order where both prices are displayed. A visual chart is needed in order to see the general trend and build a trading system with overlaid indicators. If the issue of the spread is so fundamental, we work with the order.
A line chart is convenient from a visual point of view, but no more. It does not show what was happening within the timeframe (within that very minute), that is, it does not provide information about market sentiment. After all, the chart shows only quotes at the end of the timeframe, but does not provide information about the volatility within the period and the amplitude of the price movement.
If you are a beginner trader, then a line chart is the best way to get acquainted with the principle of pricing. If you want to learn how to build strategies, go to bars and candles.
One of the most convenient charts for trading and building a strategy. A candlestick is an MT4 chart figure that consists of two parts: a body (rectangle) and shadows – lines extending from the body.
Each candlestick represents the nature of the price behavior in the interval specified in MT4. If it is equal to 1 hour (H1), then:
- The extreme points of the shadows (vertical lines) are the extremes (Max, Min) of the price within an hour.
- Body boundaries – the opening and closing prices within the timeframe. Price at the beginning of the hour and at the end. If the candlestick is falling, then the opening price is the upper point of the candlestick body, if it is growing – the lower one.
In theory, each subsequent candlestick should start on the same line with the previous one (the direction of the candles is not important, the yellow lines are an example). But if you take a closer look at the schedule, this is not always the case. Why? Inaccurate quotes, speed of servers (including those of quotes providers), redrawing – a private trader is unlikely to know the real reasons for this. Therefore, it makes sense to lay such moments of discrepancy in the risk zone.
The advantages of a candlestick chart:
- Visual display. The bodies of rising and falling candles are displayed in different colors. The color changes in the settings.
- The volatility of the price and the nature of the trend are visible. Small body with big shadows – for a long time, buyers and sellers were looking for an equilibrium point, but none of them could prevail. This is just one example.
- The ability to build a strategy. Patterns (candlestick patterns) are a separate area of technical analysis that has a psychological basis. If you have read this far, then in the search bar of the FxCash blog enter a query: pattern or Price Action – get even more information.
For trading at the initial and average levels without claiming to the Grail, nothing better than a candlestick chart has yet been invented.
- Bars… A chart that essentially repeats the candlestick chart, but with a slightly different display. There is no body drawing here, and the opening and closing prices are displayed by strokes to the left and right of the vertical line. On the left is the opening price, on the right is the closing price.
If the opening price (left dash, yellow arrow) is above the right dash, the bar is bearish (declining). If the closing price (dash to the right, blue arrow) is higher – bullish, that is, growing.
The MT4 chart is inconvenient in that there is no color difference between the candles, and the so-called strokes on both sides simply merge. You can get used to it, but what’s the point if working with candles is much more convenient? In the examples of strategies and the Forex tutorial, only the candlestick chart is used almost everywhere. And if you see the word “bar”, feel free to replace it with “candlestick” – the calculation of points on the MT4 chart is the same.
Continued in the next review.