In addition to bar charts, candlestick charts and line charts, the traders who base their strategies in technical analysis also use other types of graphics that are popular among some investors, including Forex traders. Some of these charts have different characteristics that make them interesting for market analysis. The following are some of these alternative types of price charts:
It is a type of graphic that shows a different line thickness depending on the direction of the market.With this graph the trader should buy when the fine line becomes thicker and sell when the when the thicker line becomes thin. In fact it is a price chart easier to read and interpret.
It is based on closing prices. Before drawing the graph the analyst must choose an amount that is the minimum price movement which is needed to draw a new line of price change. For example, if the amount of rotation is 5 and there is a downward line, to draw an ascendant line we need that the closing price of the current period is 5 points higher.
In general, the Kagi chart is used to show price reversals. In the graph above, we can see changes from bearish to bullish trend which are indicated by the change of fine to coarse line and vice versa. So the trader receives information no only about the price action, but also from changes in the trend.
This is a type of chart which draw a line in the direction of previous move only if exceeds a certain fixed amount. It is quite useful to determine the market trends. Basically, this type of graphics serves to set the trend in which is moving the price of the instrument chosen
Basically, to create a Renko chart we must draw a line in the direction of the previous move as long as the price advanced some predetermined fixed amount. It is composed of rectangles of the same size and it is based in the closing prices.
Three Line Break Chart
A type of graphic that adds a new line in the direction of the main trend no matter how small the movement.
The basis of this graph is that the market has to move above or below the three lines above to draw a line of opposite color. No amount of rotation is fixed in advanced. Like the previous graph types is based on the closing prices.
This type of chart is highly used by traders who base their strategies in technical analysis mainly because in a symmetric chart any price increase means the same graphic representation. This means basically that if we buy a stock at 100 € and we sell the same stock at 200 €, the benefit will be 200 – 100 = 100 euros, or in other words, we obtain the 100%.
However, if we buy the same stock at 200 € and sell it at 300 € there will be a benefit equal to 100 € as in the previous trade but the actual profit on investment will be 50%. Well, this condition can be corrected by using the semi-log charts in which equal price increments have different graphical representations which helps to provide a more representative view of market behavior.
So we can say that the semi-log chart reflects more realistically than the symmetric chart the benefits and the recovery of initial investment. Below is an example of a logarithmic graph compared to a symmetric graph: