Technical Analysis of the Currency Market: Classic Techniques for Profiting from Market Swings and Trader Sentiment

CHAPTER 4

Show Me the Data!

There are three basic ways to display price data in a chart. The simplest and perhaps least useful is via a line chart. The line chart displays one single point of price per unit of time and therefore offers only the most basic data to the trader. Figure 4.1 is an example of a line chart in the EUR/USD using the daily time frame. Notice how the chart offers only the most basic data regarding price action, hiding all of the intraday volatility. Because of this property, few technical traders ever use line charts as their source of analysis, yet perhaps more should. It is precisely because of their simplicity that line charts could be a valuable tool for quickly ascertaining trend or trend exhaustion. By eliminating most of the price action, line charts also in effect eliminate a lot visual noise, allowing the trader to focus on the core price movement.

Bar charts are the next way to display price, and they encompass far more information than simple line charts. Bar charts show the open, high, low, and close of the instrument for a particular time frame. Figure 4.2 depicts the basic visual parameters of the bar chart.

Bar charts undoubtedly contain more data than the simple line charts. Most importantly, they show the highs and lows for the given time period, providing the trader with a clear idea of the magnitude of volatility. Note, for example, the same price data displayed as a bar chart and greater depth of information that it conveys. Most importantly, ...