Introduction to Trading Charts

Most trading platforms provide you with a charting package when you open an account. Even free demo accounts usually include some form of charting.

If a firm has trading apps (and any good firm does) then you can also get charts via the apps.

A warning though, even though it’s 2017, the charts on apps can be very slow.

If you add a technical indicator(s) to the charts, normally just a mouse click or two, it can help you to spot trends.

The chart below is a CFDs chart from Plus500, rather than a spreads chart, but it works well for a quick look at the markets.

Live CFD Chart

Where to Get Spread Betting Charts

The firms below all provide their clients with live charts.

Spread Betting Financial Spreads - Bonds and Interest Rates IG - Bonds and Interest Rates City Index - Bonds and Interest Rates ETX Capital - Bonds and Interest Rates
Candlestick Charts Candlestick Charts available with Financial Spreads? Candlestick Charts available with IG? Candlestick Charts available with City Index? Candlestick Charts available with ETX Capital?

Types of Chart

    • Candlestick Charts

      Candlestick charts were developed by a Japanese rice trader in the 18th century. This type of chart is one of the most popular in the world of trading. It does not provide any additional information compared to the OHLC chart (see below), but it does provide the same information in a way that is easier to review.

      Periods during which the price went up are usually depicted in a light colour, for example, green or yellow. Periods when the price has dropped are depicted in a dark colour, for example, black or red. The size of the bar can also give an indication of the momentum or volatility behind any particular market movement.

      Various chart patterns have been identified by traders over the years which they believe predict future price movements. One example is the so-called ‘hammer’ which is believed to be a bullish signal. Another is the ‘shooting star’, which is believed to predict a decline in market prices.
    • Line Charts

      A line chart is normally a chart of all the closing prices over a period of time which have been connected by straight lines. The information provided by this type of chart is therefore limited to closing prices, whether these are hourly, daily, or weekly etc.

    • Bar Charts and OHLC Charts

      A bar chart or OHLC chart shows the opening, high, low and closing price for a particular time frame, for example, an hour or a day. This makes it much easier to see at a glance, which days were ‘up’ days, and which were ‘down’ days.

    Basic Video Guide to Charts

    Here we have a 6 minute video which gives a good basic overview of the different chart types. It also explains why many investors prefer candlestick charts.

    Charts, Indicators and a Warning

    Although a spread betting chart will give you a visual representation of what has been happening to a market, there are ways to improve this picture. This is often done with the help of so-called technical indicators which are usually depicted on the same chart.

    A technical indicator is a statistical formula used by traders to try and predict future price movements. Examples of technical indicators include moving averages, momentum indicators and volume indicators.

    Of course, as with any technical analysis / chart based analysis investors need to be careful. Charts are based on historic price information and just because a market has behaved a certain way in the past does not mean that it will continue to do so.

    Ichimoku Kinko Hyo Charts

    This is another Japanese charting system. It was developed during the 20th century and took more than 30 years to perfect. It combines candlestick charts with an array of other indicators to form a system that is widely used by Japanese traders.

    The core of the system is the so-called ‘cloud’: a dark area between two lines which indicates uncertainty in the market. If the price trades above the cloud, a bullish trend is believed to reign. Should the price drop below the cloud, the bears are winning and we can expect further price decreases.

    Ichimoku Kinko Hyo Chart Example
    Above – Example Ichimoku Kinko Hyo Chart

    What Timeframe to Use?

    Regardless of which type of chart you decide on in the end, you need to select the timeframe(s) to suit your trading. This can be anything from 1 minute or 5 minute charts to weekly, monthly or even yearly charts.

    If you work full time and you cannot watch the charts all the time, you may be better off sticking to longer-term time frames.

    If you have the time and the inclination to watch, and trade, the charts virtually around the clock, you might opt for 1 minute, 5 minute or 10 minute charts.

    Different types of investor use different timeframes:

    • The Day Trader – naturally, these investors trade over a very short time frame. Usually the trader would open and close trades on the same day.

      Because the times frames with day trading are much shorter than with other types of trading, an investor is more likely to use 1, 2, 5, 10, 30 or 60 minute charts.

      Note, if a day trader using spread betting for their trading, they will not have to pay overnight finance charges as long as they close all their trades before the end of day.
    • The Swing Trader – these investors believe that the markets follow certaiz identifiable ‘swings’ and that if you enter a trade at the start of a new swing you can profit from this.

      Swing traders usually trade within a time frame of several weeks. They will probably prefer 1 hour, 4 hour and/or daily charts
    • The Long-Term Trader – these investors trade within a time frame of months or even years.

      Long-term traders will often use fundamental indicators rather than technical indicators to guide their trading activities. They tend not make decisions on the basis of short-term price movements and so usually prefer weekly or even monthly charts.

    What Can You Expect From Your Charts?

    Below, we take a look at the Financial Spreads charts which are fairly representative of the larger firms in the industry.

    Financial Spreads offers in excess of 1,000 markets and clients can access charts for each individual market.

    In the past, clients have also been able add a range of technical indicators and view the charts across a number of different time periods from 1, 3 and 10 minute charts for day traders to hourly, daily and weekly charts for those investors taking a longer view.

    Some of the new features include:

    • Back-Testing tools
    • Email alerts for when the markets hit a user defined level
    • More time periods such as 2 hour, 4 hour and monthly charts
    • A longer history for shorter time periods
    • More price display options
    • More indicators
    • More drawing features such as Fibonacci fans, time zones and arcs
    • A snap high/low feature for drawing lines

    Simple Chart
    Above – Example trading chart from Financial Spreads

    Modifying and Creating Bespoke Charts

    InterTrader is one of very few brokers to offer IT-Finance Advanced Charts free to all its clients, without minimum trading volumes or other usage requirements.

    IT-Finance Advanced Charts contain over 70 preset technical indicators, enabling complex technical analysis of historical price data.

    Advanced Spread Betting Charts
    Above – Example IT-Finance Advanced Chart

    Any of these indicators can be modified and users can create their own indicators with the simple ProBuilder language. With your indicators in place, you can set alerts triggered by single or multiple criteria and monitor the current status of all your alerts.

    This package also gives you the power to conduct sophisticated backtesting against historical data. After setting any combination of trigger conditions and defining your money management rules, you can run a full simulation showing all your virtual orders and trades, your equity curve and a full breakdown of the return on your virtual capital.

AuthorAlex Turner

Senior Editor, SpreadBetMagazine