Line chart is the easiest chart at Forex. It represents a curve, which shows closing price for a certain period of time. Line charts can be also based on the median price, opening price, lows or highs.
A line chart is the first thing, which beginners learn in the financial market.
It is simple and gives clear view of the current situation in the market.
Look at the line chart above. You can see that it is quite simple. Changes in price over certain intervals of time are displayed as the dots, which form a curve of the chart.
Use of a line graph for market analysis
A line chart is widely used for market analysis. It is usually applied in the graphic method of forecasting. A line chart helps to identify patterns and build the most accurate levels of support and resistance. Other charts are not suitable for this purpose. We can say that it is much easier to find such patterns like Head and shoulders, Double/Triple bottom, Flag and Pennant with the help of the curve, than with Japanese candlesticks.
Levels of support and resistance marked on a line chart will be more accurate. However, the line is not an analytical tool and cannot be used to predict prices. Most traders prefer to use bars or Japanese candles when they work with indicators.
Example of the line chart application for market analysis
The above screenshot displays a pattern Head and Shoulders, which can be easily determined with the help of the line chart. We can clearly see that this pattern is formed in accordance with the rules applicable to this pattern, such as breaking down the neckline and further retesting it from bottom to the top.
Pros and cons of the line chart
A line chart is a curve of a price. The chart does not have any traps or pitfalls, which makes it easy to understand even for beginners.
- Applicable with the graphic method of analysis.
This method of representing a price enables a trader to depict support and resistance levels and determine patterns.
- Does not show gaps.
A line chart does not show price gaps, as there will be a line between Friday’s closing price and Monday’s opening price.
- Does not give full information.
This chart gives the less information than the other charts. For example, on the daily timeframe you will see prices for the previous time intervals but you will not know what happened during each day.