How to use charts with automated trading platforms

Every industry has its own intricacies that make it challenging and exciting at the same time. Each also has tools and expertise that help make the work of professionals in the sector more convenient and efficient. Take trading, for instance; you can use many different instruments and strategies to tackle the markets, but none is as essential and pivotal to your success as charting tools. 

Charting tools are graphical representations of an instrument’s price movement over time that helps you visualise information more simply. Traders use them as part of their technical analysis to assist in identifying market patterns and trends. This piece will look at how to use charts with automated trading platforms and highlight a few types. For comprehensive details, visit TradingGuide.co.uk for more.

What are Trading charts?

Trading charts are sequences of instruments’ price movements drawn in graphical representation over specific time frames. The Y, or vertical axis on a chart, represents the price scale, while the Z or horizontal axis, the time scale. You read charts from left to right on the horizontal axis, with the most recent price changes on the far right. 

Traders on the best automated trading platforms in the UK use charts as part of their technical analysis, but they are also helpful when conducting fundamental research. They are easy to read and can assist in spotting the effects of different economic and non-economic events on trading instruments’ prices, which is invaluable in positioning your trades.

Furthermore, charts can assist in identifying whether an instrument is trading on the extremes, high or low, which lets you know when to enter or exit positions. As such, they are essential to a trader’s arsenal and research process. 

Types of trading charts

1. Candlestick Charts

A candlestick chart is a form of graphical representation of an instrument’s price movement similar to a bar chart. But unlike a bar chart, it represents four crucial price-related information essential to a trader. Candlesticks show the open, close, high, and low prices, as well as the market direction indicated by their colour. A green candlestick represents an upward-moving market, while red is downward. 

A candlestick formation consists of two parts, a wick and the body. The Wick represents the highest and lowest prices an instrument reaches during a trading period, while on the other hand, the body indicates the opening and closing prices. There are many types of candlesticks formations, and all help you anticipate how prices will move and how the market will react to certain events. 

2. Line Charts

A line chart or line graph is a series of markers, usually the closing prices of an instrument over a long period interconnected by a straight line. It offers little in terms of information, but it can help identify long-term trends and pick out head and shoulder and triangle patterns. It’s most helpful to traders trading on a daily rather than an intraday strategy and when only data on the closing price is available on specific instruments. 

3. Bar Charts

Bar charts are one of the most popular ways of visually representing trading information. You plot them using an instrument’s high, low, and closing prices in a given time frame. The opening price is optional to a bar chart, but you can also include it when available. 

The high and low prices represent the top and bottom of the bar, while the opening price is the short horizontal line that extends to the left and the closing price to the right. On a day’s bar chart, you have the opening, closing, high, and low prices for the day, while on a week, Monday’s opening price, Friday’s closing price, and the week’s high and low. 

4. Tick Charts

A tick chart is a bar representation of intraday trading in terms of quantity. Each new bar or tick represents a specific number of trades not exceeding a five-day time frame. But unlike a volume chart, each transaction’s amount is different and does not replicate its function. Tick charts are an effective way of reducing market noise, as each bar’s formation is equal. 

For instance, a tick chart whose bars represent 100 ticks for 100 trades at any amount can represent contracts with a single or 10,000 shares.