[Member Mailbag] Q: Do You Use Candlesticks, Bars or Line Charts?

Bar Charts and some use Line Charts. I prefer to use them all and they each have a role in my process. In my every day, end of period, analysis, I prefer to use Japanese Candlesticks because they really tell a story. You get the opening price, the high, the low, and most importantly the closing price. So if you want to know what happened intraday, or intraweek, to get us to where we finally closed, I think candles are the most efficient.

Once a week I go over my entire Chartbook, with over 500 charts consisting of stocks, Indexes in the U.S. and Globally, Commodities, Currencies, Sectors and Intermarket relationships, using just bar charts. I remove any moving averages and indicators and just analyze supply and demand on both weekly and daily timeframes using bars. It's amazing how much you can see when you get everything else out of the way.

Finally, Line charts also play an important role. This type of chart connects all of the closing prices to each other, eliminating all the noise, even more so than bar charts. If we're looking at daily charts, the lines connect daily closing prices while weekly line charts connect the end of week closing prices. Both really help in technical analysis as closing prices are the most important. Charlie Dow taught us that in the late 1800s and it still applies today.

Line charts are also preferred when looking at ratios. You see, while Japanese Candlesticks tell a great story because of their format, in ratio analysis, that image can be skewed by different open and closing times, especially when putting together ratios from ETFs. In order to eliminate any of these issues, line charts do the trick because they're only focus is on closing prices.

As you can see, they all play a role depending on what you're type of analysis you're doing.

Cheers,

JC

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