Types of Charts – How to Read Them?

When trading any asset, including cryptocurrencies, charts play an essential role in technical analysis. They are at the core of market evaluation, helping traders recognize trends and price patterns. By mastering chart interpretation, traders can make better-informed decisions and improve their chances of profitability.
‍

This lesson explores how to read charts and discusses the main types of charts used in technical analysis.

Contents

• Types of Charts Used in Technical Analysis
• How to Read Charts?

Types of Charts Used in Technical Analysis

Charts visually represent price and trading volume changes over a set period. There are multiple chart types, each offering different ways to analyze price movements.
‍

Technical analysts use various charts, depending on their strategy and the type of insights they seek. The goal is to identify patterns and trends that might not be immediately visible. Below are the most commonly used types of charts in technical analysis:
‍

• Line Charts
• Bar Charts
• Candlestick Charts
• Point and Figure Charts
• Renko Charts
• Kagi Charts
• Heikin-Ashi Charts

Among these, the most frequently used are line charts, bar charts, and candlestick charts. Let's examine them in detail.

Line Charts

Line charts are the simplest type of chart, containing minimal information. They consist of a single line connecting the closing prices over a selected time period.
‍

• Line charts are ideal for understanding general price trends.
• They are commonly used by investors who prioritize closing prices over daily fluctuations (such as opening, high, and low prices).
• Although useful for identifying overall trends, they lack the details necessary for short-term trading.
• These charts are typically used in reports and presentations to provide a historical overview of price movements.

Bar Charts

Bar charts, also called OHLC (Open-High-Low-Close) charts, display more detailed price information than line charts.
‍

Each bar in the chart represents a time period (e.g., one hour, one day) and consists of:
‍

• A vertical line indicating the highest and lowest prices within that period.
• Two horizontal ticks on either side:
  
  • The left tick marks the opening price.
  • The right tick marks the closing price.

Bar charts offer a better understanding of price volatility compared to line charts.
‍

• A long vertical line suggests high volatility within that period.
• These charts help traders identify price fluctuations over different time frames (e.g., 5-minute bars for short-term trading or one week bars for long-term analysis).

Candlestick Charts

Candlestick charts are one of the most widely used tools in technical analysis. They provide detailed price action insights, similar to bar charts, but in a more visually intuitive format.
‍

Developed by Japanese traders in the 18th century, candlestick charts offer four key data points for each time period:

• Opening Price
• Highest Price
• Lowest Price
• Closing Price

Structure of a Candlestick

A candlestick consists of:
‍

• The Body – Represents the range between the opening and closing prices.
• The Wicks (Shadows) – Show the highest and lowest prices during the time period.
• Color Indication:
  
  • Green (or White) – The closing price is higher than the opening price (bullish candle).
  • Red (or Black) – The closing price is lower than the opening price (bearish candle).

Candlestick charts help traders spot trends, reversals, and continuation patterns more effectively than bar charts.

Heikin-Ashi Charts

Heikin-Ashi charts are a modified version of candlestick charts that use averaged price values to smooth out price fluctuations.
‍

• These charts help traders identify trends more clearly by reducing market noise.
• Unlike standard candlestick charts, Heikin-Ashi candles do not represent exact market prices but instead use price averages.
• Key Features:
  
  • Candles without lower shadows indicate a strong uptrend.
  • Candles without upper shadows indicate a strong downtrend.
  • Small-bodied candles with long wicks suggest market consolidation or trend reversals.

Heikin-Ashi charts are especially useful for:
‍

• Spotting long-term trends.
• Filtering out short-term price noise.
• Easier interpretation for beginners.

They work best in combination with other technical indicators like RSI or MACD.

Chart Comparison: Which Type to Use?

Each type of chart is suited for different trading strategies and experience levels:

‍

‍

The choice of chart depends on your trading goals, experience, and strategy.

How to Read Charts?

Charts display the value of an asset over time.
‍

• The vertical axis (Y-axis) represents price in the quoted currency.
• The horizontal axis (X-axis) represents time.

For example, a BTC/USD chart will show:
‍

• The price of Bitcoin in U.S. dollars at different time intervals.
• Patterns and trends based on historical price movements.

By understanding different chart types, traders can develop stronger analytical skills and make more informed trading decisions.

Conclusion

Understanding and interpreting charts is a key skill for any trader. Different charts serve different purposes, and selecting the right one depends on your trading style and goals.
‍

In the upcoming lessons, we will explore:
‍

• Chart patterns
• Trend identification
• Entry and exit strategies
• Advanced technical indicators

By mastering these concepts, you will be better equipped to analyze cryptocurrency markets effectively.

‍