According to the statistics report published in 2019, the primary goal of data analysis is to analyze and present data in a meaningful manner. However, to present your technical analysis data in a presentable format, you need to understand the different types of charts used in technical analysis. As the name suggests, technical data is challenging to read and understand without interpretation.
Most audiences do not possess the skills that they can use to read between the lines when analyzing technical content. It’s essential to ensure that you understand a series of charts and graphs that are used to interpret technical data aspects and break them down into smaller elements that are easy to understand. Prior to getting deep into the story, you need to understand what a chart is to enable you to grasp what is required when analyzing technical data.
It’s evident that charts and graphs are the heart and soul of technical content. In simple terms, a chart is a graphical representation of information collected from different sources used to address the needs of a given organization. Provided that you have data at your disposal, you can easily generate your preferred chart to make the data easy to read and understand, especially for the non-technical audiences.
In the past, charts were popularly known to be drawn using hands. As the technology industry captured the airwaves, things have significantly changed, and you can now create a chart on your computer and have an exceptional data output. Most industry organizations rely on charts and graphs to help them understand the message displayed in technical data jargon. What makes charts easy to read is their pictorial nature which anyone can easily understand.
When dealing with technical data elements, and you want to transform them into a simple format, you will need to look out for the best data that suits your needs. However, knowing the importance of charts and graphs in technical data analysis is not the end of everything since there is something that you are still missing. To analyze technical data easily, you need to understand some of the best charts and graphs you can easily acquire and get the job done.
Not every chart or graph you see can help you in technical data analysis. There are specific charts and graphs that are specifically meant to help you analyze and interpret technical data. This blog piece explores different types of graphs used in technical analysis. Let’s dive into details!
Bar Chart
Even though a bar chart seems to be a simple type of chart among many, it constitutes a lot of aspects that many people haven’t discovered. In technical data analysis, a bar chart is also known as OHLC since it has the four price points, which are crucial in data analysis. These points are the open, high, and closings. The points are mainly used when dealing with a specific time frame within your data.
The chart comprises several vertical lines, also known as bars representing the price range within a given duration. Every side of the bar represents either the open or the closing prices, depending on the nature of the data you are presenting. The vertical line on the chart is used to describe the highest price that the security has reached. The bottom end is used to reflect the lowest price within a specified time frame.
In addition, the length of the bar is used to showcase the range applied for the same time frame. On the left side is the horizontal dash, which is used to display the open price for a similar period. On the flip side, the right horizontal dash represents the closing price within the same period. One of the most critical aspects that make the bar chart stand out from the rest and make it the best choice, is because it uses all the four necessary points.
On the downward side, a bar chart does not have a visual appeal, thus making it difficult to detect patterns and trends in the data. However, you can edit and add any of your preferred colors.
Line Chart
The line chart is another incredible and straightforward option that only needs a single data point to generate it. It’s a pretty good option that you can use to navigate the technical analysis process and generate remarkable data output that is worth your time and effort. In this scenario, the data point is used as the closing security within a specified duration. During data analysis, a dot is placed on all the closing prices within all the closing prices for a specific time frame.
After placing the dots, you need to connect them using a line that runs from the left to the right side. For instance, when you are analyzing the data you have collected for thirty days, you need to connect the dots of all the closing prices for the thirty days. Note that you can easily create a line chart for any data collected within a specific time frame. Depending on your needs, you may opt for a weekly, daily, monthly, or even hourly option.
A line chart remains one of the simplest options when you want to analyze the essential insights in your technical data since it places everything on display, making it easier to read between the lines and get the intended message in the right context. Besides, a line chart makes it easier for data analysts to identify the existing trends and patterns within the shortest time possible.
However, the problem is that data analyzers do not get additional information from the chart apart from the trends and patterns. The most important aspect is that once the trends and patterns are spotted, it becomes easier for the data analyst to depict the way forward since they get a better foundation for data processing.
Point and Figure Chart
This unique chart option can be used in technical data analysis. Also, this is among the oldest approaches that were used in the past before the introduction of technology. The advancement of technology has contributed significantly to the development of this chart, making it a reliable option in technical data analysis. However, many believe this chart option is difficult to interpret and understand. This is not the case!
The point and figure chart use columns that consist of the X and O, which are used to depict the movement of prices within the market. When creating the chart, analysts need to begin by setting up a box size representing the minimum price differential, which is essential before you record the price as either X or O. You can opt to set the price of the box as either a percentage or a fixed value. The X value is only used when the price difference is larger than the box size.
The O value is used when the price difference is much less than the box size. The data analyst had the responsibility to set up a reversal size that is used to depict how much the price requires to move from either the high or the low to generate a new trend. If the market price has moved from one trend to the next, it triggers the right, which impacts a trend change. Within the letters, different numbers represent different months, thus giving investors first-hand information regarding the market trends.
Conclusion:
When choosing the best chart type to use in technical analysis, you need to consider the aspect of analytics and reporting during data processing. Remember that after you have processed the data and gathered insights, you need to compose a comprehensive report that goes hand in hand with the final findings. Also, the data report should be easy to read and understand to enhance communication. The charts outlined in this article are easy to use and don’t waste much of your time. You can incorporate them into your data processing activities and get better results.