Trader Leader

Choosing the Right Trading Charts and Trading Periods

Using the right chart and setting the right timeframes can make the difference between a profitable trade and a loss in your game. Make sure you know how to use them! 
Graph Types

When working with a trading platform, traders can choose between various types of charts and set the period according to their preference. Some might say that these are secondary aspects of trading and make no difference. However, when money is at stake, everything matters.

As you read this article, you will understand that choosing the chart type and finding the ideal timeframe is no mere whim. You will also see that these two features can help traders get better overall results.

To be successful, traders need to learn, and learn a lot. It is very important to learn the most appropriate trading strategies, as well as fundamental and technical analysis, asset types and more. However, the basics shouldn't be discarded either. To trade properly, the trader must know the right way to set their trading timeframes and in which periods to trade.

Choosing a suitable chart type is a great first step in this regard!
Line
The line chart is the simplest and easiest way to display data on-screen.

This type of chart is easy to understand and use in trading. However, its performance can lag behind its more advanced counterparts when it comes to long-term trading and applying technical analysis tools (as most of them use candlesticks for calculation purposes).
Benefits:
  • The line chart's visual simplicity makes it best suited for short-term trading.
  • The line chart makes the chart simple, showing less (no information about the open, high and low prices). It is therefore good for newcomers.
Disadvantages:
  • It is not the best type of chart for in-depth analysis, especially over longer time spans.
  • This type of chart does not show price differences.
Candles
By far the most popular chart type and most professional traders stick to it as it offers additional opportunities for technical analysis.

Candles may need only a little explanation. With a line chart, everything is very simple: the price goes up and down and the trend line follows. Candles work differently. Each candle displays not a moment, but a period of time. It will, therefore, have the opening price (the price at the beginning of that period), the closing price (the price at the end), as well as the high and low prices. The distance between the opening and closing prices is the body, thin lines are the shadows. The candle will change color based on the asset's performance: if the closing price exceeds its opening price, the candle will turn green; if the closing price is below the opening price, the candle will turn red.
Benefits:
  • Shows price difference for each period selected
  • Easy to understand price patterns
Disadvantages:
  • Might not be suitable for beginners
  • Candle patterns can be misleading
Bars
Bars charts are an alternative approach to the Candlestick chart.

With a slightly different appearance, they use the same principles and work the same way. This type of chart also displays open, close, high and low prices. Like candles, it will turn red if the price decreases within one bar and green if the price increases over the same period.
Benefits:
  • It demonstrates all the necessary information (like candles), but it does it a little differently.
  • Makes market gaps visible.
Disadvantages:
  • Price movements that occur during the trading period are not displayed. Shorter timeframes may be required for additional information.
Heikin-Ashi
A modified candlestick chart.

It levels the movement of prices and makes it easier to spot a strong trend, while eliminating price noise. The graphic you get at the end is smooth and elegant when compared to the basic candlesticks trading chart.

Heikin-Ashi is even used by some traders to predict the future price of the asset without using additional technical analysis indicators, since its appearance is calculated in such a way where price movements are already instinctively visible to the trader.
Benefits:
  • Especially powerful for long term trading.
  • It helps to estimate the future price of the asset without additional indicators.
Disadvantages:
  • It can be difficult to use in shorter time spans.
Timeframe

Choosing the right timeframe for your chart is also half of the recipe for a good or bad trade.

Choosing the correct time frame is also very important, depending on the results you want to achieve. It is equally wrong to open a long-term trade on a short-term chart and to open a short-term trade on a long-term chart.

The timeframe you are looking for should be proportional to the trade you want to open. For example, it is better to select a period longer than the duration of your planned deal, but not by much.

This is done for the following reason: the trader must be able to analyze the past performance of the asset he is interested in, and therefore needs information about past prices. However, looking too far into the past can be counterproductive sometimes, as information on certain types of assets can be deceiving. You might not need to find a very long trend if you are planning a short-term deal, and you certainly don't want a long-term deal to based on a small trend or deviation of a larger trend.

We hope that, with this article, you were able to understand better the trading charts and the timeframes you need to use to achieve great trading results. Make sure to check a few great trading strategies as well to level up your trading skills!