The kind of chart favoured by traders of forex and CFDs is ‘Japanese candlesticks’. The reason that Japanese candlesticks is favoured is because of the great deal of information that they reveal about price action.
A Japanese candlestick is comprised of two components that indicate four different values.
The first component is the body. The body of the candle denotes the opening and the closing price of the asset in each time frame. If the price closes higher than it opened, the candle is considered a bullish candle. A bullish candle is typically coloured green. If the price closes lower than it opened, the candle is considered a bearish candle. A bearish candle is typically coloured red.
The second component is the wicks. The wicks denote the highest and lowest price that the asset exchanged hands at during a given time frame. Unsurprisingly, the top wick is the highest price achieved during that time, and the bottom wick is the lowest price achieved during that time.
There are sub-categories of Japanese candlesticks, which some traders find useful. These derivations of Japanese candlesticks include:
- Heikin Ashi
- Renki
- Kagi
- Hollow candles
There are also other charts that traders might consider, depending on the instrument they are trading and the indicators that they are putting to use. Generally, the information gleaned from these types of graphs have proven to be less useful to traders than Japanese candlesticks. These less common charts include:
- Line
- Bars
- Column
- Area
- Baseline
- Range
- Point & figure
