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Line chart vs Candlestick chart

 

 

 

 

A line chart uses only the end of day closing prices. It does not care what the price movement was during the day.

A candle chart is constructed with four price points per day. The open, close, low and high points.

Consider the following two charts. They show the chart of JNPR for the same time period, except that the first chart is a line chart and the second is a candlechart. To appreciate the plethora of information conveyed by a candle chart, we will focus on the 24th of May 2007. What does the line chart show for this day? One can notice climactic volume and a single point, which tells us a trader, something out of ordinary happened. But what?

There is nothing to be gleaned from this point on the line chart.

Now look at the same day on the candlestick chart. It is an entirely different story. It visually tells the candlestick trader that the bears who had opened the price way below the previous close, lost control to the bulls. The bulls were strong throughout the day. The supply was being continuously absorbed by demand till the very end of the day. This signal which in candlestick terminology is defined as a Belt-hold signal, is known to start a strong uptrend. It has been widely studied by the Japanese traders and has proven its efficacy. Given the knowledge of this signal and its expected outcome makes an excellent trade setup for the candlestick trader.

Once a trader starts using candlestick charts, all other charting methods seem old and obsolete.

Chart courtesy stockcharts.com