Wednesday, July 26, 2006

Linechart vs Candlesticks

For about 4 months I’m now trading exclusively with Linecharts (Line on Close), while previously I have used Candlesticks, Heikin-Ashi or Bar-Charts.

It took quite some while to convince myself, that I’m not missing information when trading Linecharts as there is no High, Low or Open marked on a Linechart. And only when I was on some cheap Forexsites, showing simple Linecharts with nothing else on the chart I understood, that you don’t need Candles or Bars for trading, that the Linechart gives you all the information you need to trade:

Go Long, if prices go up

Go Short, if prices go down

Can it be easier than that?
How do you determine if prices go up? That’s not really difficult, but in trading we not only look at prices going from 698 to 699 to 700 but we look at movements in a certain timeframe, saying that any movement within this timeframe is just prices oscillating up and down.

10:00am ER2 Open 697 High 700 Low 696 Close 698
10:05am ER2 Open 698 High 700 Low 696 Close 699
10:10am ER2 Open 699 High 700 Low 697 Close 700

Candles are green in the above example, but won’t tell you at first glance to go long, A Linechart shows a nice straight line up. Look at these 2 charts below:

A candlestick chart and here the same Chart using a Linechart (the black Line is the Line on Close)


For me the Long entry marked was a lot easier to see on the Linechart than on the Candlesticks, but every trader has to find his/her own Chartsetup, which fits your personality. For me seeing a Line going up or down makes it very clear what direction a contract is currently trading, at least a lot easier than looking at Candlesticks.