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  • Charting

     
     

    The two most commonly used charts in technical analysis are the bar chart, and the point and figure chart. There are many technical studies that can be added to these charts such as trend lines, moving averages and stochastics (probabilities).

    Bar charts use a vertical bar to record the high and low range of a price for each market day. The length of the bar indicates the range between the highest and lowest quotations. The vertical line is crossed by a small horizontal line at the closing price level. Therefore, in just one line per day it is possible to show the closing price as well as the minimum and maximum quotations registered for that day. A record is made daily, forming a pattern that may cover several weeks, months or even years.

    Some chartists insist that a new bar chart should be started as soon as a new futures position is opened. However, it is common to continue the original chart with the new position following the position that has just expired. As the new position may have discounts or premiums in relation to the old position, the chart should be clearly marked to indicate where the new position starts and where the old position ends.

    Continuous plotting can be done in various ways. One way is to show the first position until it expires and then to continue with the new first position. Another way is to show only one position until it expires and then to continue with the same month of the following year. The drawback of the second method is that once a position expires, e.g. in December 2004, and the next position taken is December 2005, prices may have changed significantly and the chart may therefore show either a large increase or decrease.

    Trend lines on charts reveal significant trend changes but obscure subtle changes in supply and demand factors. The trend line is best suited for recording long-term changes in indices or other financial and economic data. The market registers three types of trends: a bullish trend when prices are rising, a bearish trend when prices are falling, and a steady or lateral trend when prices are neither rising nor falling. A steady trend sustained for a comparatively long period is known as a congestion area. The larger this area, the greater the possibility that the market will begin a definite trend, either bullish or bearish.

    The simplest patterns to recognize are those formed by the three types of trend lines. These are: the support line, which is drawn to connect the bottom points of a price move; the resistance line, which is drawn across the peaks of a trend; and the channel, which is the area between the support and resistance lines that contains a sustained price move.

    The point and figure chart differs from the bar chart in two important respects. First, it ignores the passage of time. Unlike a bar chart, where lines are equidistant to mark distinct time periods, each column of the point and figure chart can represent any length of time. Second, the volume of trade is unimportant as it is thought merely to reflect price action and to contain no predictive importance. The measurement of change in price direction alone determines the pattern of the chart. The assumptions underlying the point and figure chart primarily concern the price of a commodity. It is assumed that the price, at any given time, is the commodity's correct valuation up to the instant the contract is closed. This price is the consensus of all buyers and sellers in the world and is the result of all the forces governing the laws of supply and demand.

    Moreover, no other information needs to be included in this chart because the price is assumed to reflect all the essential information on the commodity.

    Real time and delayed charts can be obtained from various sources, e.g. www.theice.com , www.tradingcharts.com  and www.coffeenetwork.com  - just to mention a few.

    Daily and monthly coffee price futures charts are offered free of charge by www.futures.tradingcharts.com and are easy to access.

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