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the closing price be lower than the opening price (a
downward movement), the vertical line will be represented in red. Should the closing price be higher than
the opening price (an upward movement), the vertical
line will be represented in green. Figure 2 is a graphic
representation of the interpretation of an individual
bar chart, while Figure 3 is a visual representation of a
bar chart over a period.
The most important advantage of a bar chart compared to a line chart involves the information reflected
by the graph. As already mentioned, the bar chart
does not only make use of the closing prices, but also
of the high, low and opening prices for the trading
period. This information is mainly used to determine
access and exit levels and is therefore very handy for
short-term market participants. The bar chart can also
be used to indicate possible changes in the price trend,
for instance by making use of price gaps. Despite the
benefits of the bar chart, the candle-stick chart is a
more popular price graph for analytical purposes.
3. Candle-stick chart
The candle-stick chart (graphically represented by Figure 4) is similar to the bar chart, but the candle-stick
chart is regarded as the most commonly used graph
due to the fact that the data can be analysed easier.
The candle-stick chart is compiled in the same manner as the bar chart, with the only difference being
that the space between the opening and closing price
is represented by a column. The colour of the column
changes, depending on whether there is an upward
or downward movement over the period. An upward
movement (closing price is higher than the opening
price) is usually represented by a green column, while
a downward movement (the closing price is lower
than the opening price) is usually represented by a red
column. This explanation of a candle-stick chart is
graphically illustrated in Figure 5.
The use of the candle-stick chart is further supported by the large variety of candle-stick patterns which
can be used to indicate possible trend changes. It is
proposed, however, that the patterns be used in co-operation with other technical formations and indicators
in order to make an informed investment or hedging
decision. The different candle-stick patterns will be
discussed in the next article.
CONCLUSION
By merely having a reasonable understanding of the
above information, you will be a step ahead of the
38 AUG/SEP 2016
• SENWES Scenario
Figure 3: Bar chart.
SOURCE: COMPILED IN THOMSON REUTERS (2016) DATA BASE.
Figure 4: Candle-stick chart.
SOURCE: COMPILED BY THE AUTHOR.
Figure 5: Candle-stick chart interpretation.
SOURCE: COMPILED IN THOMSON REUTERS (2016) DATA BASE.
rest. However, it will be most beneficial to combine
technical analysis with fundamental analysis in order
to make the best possible decision. When the longe