Thursday, December 16, 2010
PART II: CHART PATTERNS
8 A : CLASSIFICATION OF CHARTS
In stock and commodity markets charts represents the pattern of price movement over a period of time. In these charts y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale.
CHARTS USED BY ANALYST
1. Point and Figure Chart
In this chart time is not taken for plotting the chart. Plotting is done based on day to day price movement. Point and figure charts are composed of a number of columns that either consists of a series of stacked ‘X’s or ‘O’s. A vertical line of ‘X’s is used to illustrate a rising price, while ‘O’s represent a falling price.
2. Three Line Break Chart
This is a popular financial charting method used in Japan. This chart also ignores the time element. These charts display a series of vertical boxes
‘lines’ that reflects changes in price values.
3. Kagi Chart
Once again a chart developed by the Japanese in the 1870s that uses a series of vertical lines to illustrate general levels of supply and demand for certain assets. Thick lines are drawn when the price breaks above the previous high price and is interpreted as an increase in demand. Thin lines are used to represent increased supply when the price falls below the previous low. This chart also does not give importance to time.
4. Renko charts
The filled and hollow squares that make up a Renko chart are often referred to as "bricks." Renko charts have a pre-determined "Brick Size" that is used to determine as to when new bricks need to be added to the chart.
If prices move more than the Brick Size above the top (or below the bottom) of the last brick on the chart, a new brick is added in the next chart column. Hollow bricks are added if prices are rising. Black bricks are added if prices are falling. Only one type of brick can be added per time period. Bricks are always with their corners touching and no more than one brick may occupy each chart column.
Renko charts may not change for several time periods. Prices have to rise or fall "significantly" in order for bricks to be added. Hollow bricks are bullish, black bricks are bearish.
TO BE CONTINUED