What is a line chart?

A lot of traders prefer the line chart to Japanese candlesticks or bar charts. For example, many traders who trade the stock market prefer to use line charts to see price movements. This is because they consider the closing price to be the most important price of all. The line chart basically consists of the closing price for each period.

Of all three charting methods, the line chart is the simplest and most easily understood by beginners. No specialised knowledge is required, and they provide the 'big picture' of the current market. On the other hand, they lack a lot of information that is shown in bar charts, and especially candlestick charts. This includes the open, the high and the low price. For this reason, they can be misleading, and traders should take care if they decide to use this type of charting method.

Whichever chart type you use, they demonstrate a simple and effective visual representation of the price of an asset over a specific period of time. Charts also illustrate supply and demand, and include all known news, plus current expectations of future news. In the case of any updates, the price will quickly adjust to this if it differs from these expectations.

Charts are popular because they are user-friendly and therefore simple to use for technical analysis. This means it is quite straightforward to analyse and identify movements and patterns that may repeat over time. For example, a currency pair may have a certain tendency to reach after a news event or some other economic data release.

A line chart connects the closing prices of a currency pair over a certain time period. As this is the only information shown, line charts are good at showing a picture of the overall trend because they reduce market noise.

Prices are plotted from left to right across the horizontal axis, which represents time. The vertical axis shows the price with the most recent price shown furthest to the right.

You can draw trendlines on a line chart which connect support and resistance points. A line chart shows trends the best, as this is simply the slope of the line. A steeper slope means prices are moving faster. Remember that a line chart only shows the closing price, so this ignores price fluctuations during the session.

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.