We’re all too familiar with bar and candle charts, as well as candlestick patterns, but have you ever had a look at trading with line charts? Let’s have a close look at how it’s done.
See, in the earlier days of technical trading, it was a little more difficult for traders in terms of building indicators, so the methodologies were a little different, more involved around trading certain theories and concepts. They kept it a lot simpler than most of us do today.
Nowadays, pretty much everyone uses candlestick techniques to trade, even though the simplest of charts is the line chart. All a trader really needs is that one line to filter through the noise of the market, but it’s our tendency to over complicate things that leads to many retail traders failing.
The line chart doesn’t display highs, lows, opens and closes… instead it simply connects the closing price of whichever timeframe your chart is displaying. Let’s have a quick look at what a line chart looks like.
So, how is that of any use to a trader?
As I said before, these line charts are great for filtering out noise because you’re only seeing the close price of the candle. Areas of support and resistance, trendlines and turning points all seem to become easier to spot when you reduce a chart to its raw form, which can offer some of the best forex signals.
You can see that our support and resistance areas are very clearly defined on the line chart. A simple way this could be traded is by placing limit orders into support and resistance, and trade the range, looking to target approx. 1:2 or 1:3 RR.
You can see how line charts can paint a very clear picture of the current market situation. Sure, you can load your chart with various indicators, but when you break something down to its ultimate simplicity and remove all the noise, it makes it much easier to spot significant trading levels.
As I’ve shown, the closing price of a chart gives very important, no noise information about the current instrument you’re trading. Give it a go, and try defining key levels using the line chart, I think you’ll be pleasantly surprised.
Source: Vantage FX Blog