THE HAnDbOOk Of TECHnICAL AnALySIS■ (^) The bar volume is variable
■ (^) The transactions per bar is variable
■ (^) The bar volatility is variable
Examples of constant‐time charts include Japanese candlestick, bar, equivolume,
and line charts. Constant‐time charts work effectively with both numerically and
geometrically based overlay indicators (refer to Chapter 8 for more on numeri-
cal, geometrical and horizontal‐based indicators). Non constant‐time based charts
should use numerical and horizontal‐based overlay indicators, since the time axis is
not plotted in a linear fashion and hence will affect the application of geometrically
based overlays such as trendline, channel, and traditional chart‐pattern analysis. This
is the reason why non constant‐time based charts such point and figure charts em-
ploy bearish resistance and bullish support lines in place of conventional trendlines.
Constant‐time charts represent the most popular form of chart construction.
bar Charts As seen in Figure 3.1, a bar chart is easily created via the quantiza-
tion of price into specified time intervals or periods. Bar charts clearly depict levels
of supply and demand in the market. Unfortunately, opening and closing prices
are harder to read from a distance as the open and close markers may be too in-
distinct when the chart is populated with a large number of bars.
Line Charts Line charts are created by connecting all of the closing prices. Each
time interval creates a new closing price. Line charts do not provide much infor-
mation about potential levels of supply and demand since they ignore high and
low prices, which are the true indicators of market force. Nevertheless, because
line charts filter out all information except closing prices, they are usually em-
ployed as a trend identifier or simple summary of price activity.
japanese Candlestick Charts Japanese candlesticks are created in essentially
the same manner as standard price bars, as seen in Figures 3.1 to 3.3. The only dif-
ference is that the space between the opening and closing price is boxed up and is
referred to as the real body. Real bodies may be filled or hollow depending on the
configuration or relative position of the opening price to the closing price. Real
bodies may also be represented as black or white candlesticks.
Candlestick formations may be classified as follows:
- Bullish or bearish
- Reversal or continuation
- Simple, double, or multiple
We shall be delving more deeply into candlestick formations in Chapter 14.
For now, refer to Figure 3.10. As with price bars, it is not possible to determine
whether the high or low prices were created first, since most of the intrabar price
information has been filtered out.
equivolume Charts Equivolume charts are based on constant‐time based bars,
incorporating volume over a specified time interval and displaying it visually on