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Today we are taking a graphical view of the price over time. When we trade options, we don't do it just on the basis of the currently displayed price. That is not enough. Traders use charts to get the full picture and to know how we got to where we are.
Key Takeaways🔑
| →Japanese Candlesticks are popular and useful for charting in options trading. |
| →Charts like Linear, Area, and Bar provide different perspectives on price movement, but may not be as comprehensive as Candlestick charts. |
| →Understanding and interpreting chart patterns and price movements can greatly enhance trading decisions. |
IQ Options Charts Explained
Linear charts
Price movement can be represented as a line. Area and linear charts are at your disposal for this. The price usually changes very smoothly, with successive price changes recorded at intervals equal to milliseconds. The frequency of price changes depends on market activity. New ticks arrive more frequently when market participants perform a lot of operations. A line chart draws a line reflecting these changes. Zooming in and out allows you to adjust the details of these changes.
The line chart is not often used in trading. The main reason is that it provides a graph of the price over time only on a narrow time frame. This in turn does not give us a full picture of the market.
But most of the time Japanese Candlesticks are used for viewing charts and analysis of today's market situation.
Japanese candlesticks
Candlesticks contain information on price changes for a particular period of time and consist of the body and the wick.
The body border displays the opening and closing price while the upper and lower borders of the wick show the price maximum and minimum.
If the price of an asset increases then the candlestick turns green. If the price decreases then the candlestick turns red. A five-minute candlestick contains information about price changes during this given period. You may also imagine it as 5 one-minute periods which would contain the same data but on a different scale.
Bar chart
Bars are designed on the same principle. They are made of vertical lines and two short perpendicular ones left and right. Perpendicular lines show opening and closing prices and vertical lines show the price minimum and maximum.
Bar charts contain exactly the same information as Japanese candles. Both are based on OHLC prices and by reading the chart all these values can be read for a given point in time on the chart. What gives candles an advantage is their suggestiveness. The way candles are drawn makes it easy to identify popular candlestick patterns and interpret general sentiment based on the colour and shape of the candle.
Pros and Cons of Various Chart Types in Options Trading 📈📉
- Pros:
- Japanese Candlesticks provide detailed information and are easy to interpret visually. ✅
- Bar charts offer similar information as Candlesticks but may be less visually appealing. ✅
- Linear and Area charts are simple to understand, representing price movements in a straightforward way. ✅
- Cons:
- Japanese Candlesticks may be overwhelming for beginners due to their information density. ❌
- Bar charts may not be as visually suggestive as Candlesticks, making pattern recognition more difficult. ❌
- Linear and Area charts may not provide enough information for advanced analysis, making them less useful for seasoned traders. ❌
| Chart Type | Best Suited For |
|---|---|
| Japanese Candlesticks | Options and Digital trading, advanced analysis, and pattern recognition. |
| Bar charts | Intermediate to advanced traders who prefer an alternative to Candlesticks. |
| Linear and Area charts | Beginners and traders who prefer a simpler representation of price movement. |
Which chart is best for options trading?
Japanese Candlesticks are popular among professional traders. The value of a candlestick chart is in its bold ease of use and depth of information with them. Traders gain not only an image but a full-fledged fundamental analytical instrument without which most indicators are not possible.
When trading binary options and digital, Japanese candles are particularly useful. This is because many strategies involve using signals from a candlestick pattern or the colour of a candlestick sequence. In addition, strategies often assume the expiry of options as 1 or more candles regardless of the chart interval. The suggestiveness of Japanese candles often allows an accurate interpretation of what is happening in the market after a first look at the chart.
Which charts do you use most often? Write about it in the comments below the article.
IQ Option wiki wishes you a pleasant trading experience.
Common Questions about Chart Types in Options Trading
- Q: What are the key differences between Japanese Candlesticks and Bar charts?
- A: Both charts provide similar information, but Candlesticks offer a more visually appealing and suggestive representation, making it easier to recognize patterns and interpret market sentiment.
- Q: Why are Japanese Candlesticks so popular among professional traders?
- A: The detailed information and ease of interpretation make Candlesticks a valuable analytical tool, allowing traders to make more informed decisions.
- Q: Are Linear and Area charts suitable for advanced analysis?
- A: Although these charts provide a clear representation of price movements, they may lack the depth of information needed for advanced analysis and decision-making.
- Q: How can a trader choose the right chart type for their trading style?
- A: It depends on the trader's experience, personal preferences, and the depth of analysis they require. For advanced analysis and pattern recognition, Japanese Candlesticks are often preferred, while beginners might find Linear and Area charts more accessible.
- Q: Can a trader switch between different chart types to gain different perspectives?
- A: Yes, traders can use multiple chart types to gain different perspectives and insights into market movements, which can help inform their trading decisions.