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.
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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.
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.