Made with Postermaker
1. Define Line charts in your own words and Identify the uses of Line charts.
Line Charts
To my understanding, a line chart is a graphical exhibition of an asset's historical price action that links a series of data points known as "markers" with a continuous single line.
In contrast to the Japanese Candlestick chart which provides market or price data such as the high, low, close, open etc. Line Charts mainly focuses on the representation of the periodic close prices of assets.
Line Charts are easily read and comprehended by traders, and this has made them to be the favorite price chart of some traders.
The unique feature that distinguishes Line Chart with other crypto charts is that Line Chart only depicts and connect the close price points data of an asset through a single moving line.
Line Charts are known as the common type of charts which are used in finance, and typically, they display typically security’s closing prices.
Line charts are also referred to as line graphs, line plots or curve charts.
source For tradingview click on candle and select Lines from the list, and you will have a view of a Line Chart as displayed beneath
The above BTC/USD pair is an example of a Line Chart, where the moving sigle line is displaying the closing prices of the asset pair.
Now, I will focus on the use cases of Line Charts.
Uses of Line Charts.
Line Charts are used to visually track the historical price of an asset. By this, traders become aware of where the price of an asset has moved so far.
Line Charts are used as complement to other charts by traders in order to have a more technical view or understanding of an asset's closing data or price.
Line Charts are used to identify the market trend of an asset. Line Charts together other technical analysis tools helps traders to grasp the trend of a market, which helps them to open their positions.
Line Charts are used to identify the relevant Support and Resistance levels of assets' price in the market.
Line Charts are used to filter-out noise in the market by various traders.
Line Charts help traders to know the price changes that take place in the market.
2. How to Identify Support and Resistance levels using Line Charts (Demonstrate with screenshots)
The concept of Support and Resistance levels in the crypto market cannot be looked down upon, because it helps to know the dominant forces, either it being the sellers or buyers in the market within a period of time. Therefore, this concept can be considered as a stepping stone to all technical analysis.
For us to identify a Support or Resistance level using the line chart, we should see to it that the price of an asset swings and hit our drawn horizontal line in a minimum of 3 times with regard to the current trend, which gives a gist of how important these developments are to the current trend. Whiles, a breakage of either levels give an entry signal.
The Support level is normally formed by downtrends through price downswings on a horizontal line, either above a previous ranging or not, whereas the Resistance level is formed by uptrends through price upswings that get in touch with a drawn horizontal line.
Identifying Support level using Line Charts.
Support level is a situation or area of the market whereby the buying forces by the buyers become very effective to stop the price of an asset from falling any further, and bounce it upwards.
As mentioned earlier, the Support level emerges at downtrends through price lowswings, in some cases after the market has experienced an upward breakage of a ranging.
We have to construct our horizontal Support line before we can conclude with the Identification of the Support level, and by doing so, we have to find the recent or previous lows and connect them with a horizontal line.
Our constructed Support level line will be of more essence to signal the emergence of a bullish reversal, if it is attached by 3 or more low swing price points.
.png)
The above BTC/USD chart displays the Identification of Support Levels with the help of a Line Chart.
Identifying Resistance level using Line Charts.
Conversely, Resistance level is a situation or area of the market whereby the selling capacity of the sellers become very effective to limit the price of an asset from rising any further, and make it bounces downwards.
The Resistance level emerges by uptrends through high price swings, in some cases after the market has experienced a downward breakage of a ranging.
We need to construct our Resistance line before we can confirm the Identification of the Resistance level, and by doing so, we have to find the recent or previous highs and connect them with a horizontal line.
Our constructed Resistance level line will be of more essence if it is attached by 3 or more high swing price points.
.png)
The above BTC/USD chart showcases the Identification of Resistance Levels using a Line Chart.
3. Differentiate between line charts and Candlestick charts.(Demonstrate with screenshots)
A Line Chart
.png)
source
A Candlestick Chart
.png)
source
Probably there are several differences between Line Charts and Candlestick Charts, although both graphically represents the price action of assets, and below are some.
Line Chart is known to be introduced by William Playfair in 1786, whiles Candlestick Chart is noted to be the invention of a Japanese rice trader, Munehisa Homma in the 18 century.
Line Charts only showcases the close price of assets within a period of time, which makes them simple to read, whiles Candlestick Charts displays the Open, Close, High and Low prices of assets periodically.
The Identification of essential Support and Resistance levels in Line Charts are very easy, since there exist only a single moving line with key swing price points, whiles the Identification of the aforementioned factors are somehow complicated in Candlestick Charts, due to the fact that, the Candlestick Charts contain variety of candlesticks with different sizes (including their wicks), colors and information.
Line Charts reduce noise which helps to vividly showcase the market trend without any ambiguity, whereas Candlestick Charts contain noise due to the diversity of data they provide or display as mentioned earlier.
In the crypto market, Line Charts are only introduced through configuration, whereby the Candlestick Charts are default charts.
Line Chart is made up of a single oscillating line with a single color, whiles Candlestick Chart is comprises of variety candlesticks with different colors, thus green represents buyers and red represents sellers together with their influence in the market.
4. Explain the other Suitable indicators that can be used with Line charts.(Demonstrate with screenshots)
Just like the Japanese candlesticks, there are various suitable indicators that can be used as confluence with Line Charts in order to attain much better market signals.
I will ponder on RSI (Relative Strength Index) as a suitable indicator for Line Charts.
Applying RSI on a Line Chart
RSI is a leading indicator that helps traders in their trading endeavors by signaling the possible market trend and showcasing a possible trend reversal with its overbought and oversold regions.
RSI entails three market levels, thus 70-100 represents price overbought, and 30-0 represents price oversold, whiles in between is a normal or balanced marked.
When the price reaches or surpasses 70 on the RSI it indicates that buyers have been able to drive the price of an asset to an overbought, whereby a bearish trend reversal is bound to happen.
Conversely, when the price reaches or moves below 30 on the RSI it means that sellers have taken the price of an asset to an oversold, and therefore a bullish trend reversal has a high probability of taking place.
.png)
The above image depicts the application of RSI on a Line Chart.
The RSI signaled an oversold around 28, which calls for a bullish reversal, and of course the market experienced a bullish reversal.
The image also shows a bearish reversal after the RSI signaled an overbought at 71 and the price broke below the support level. This indicates the suitability of the RSI indicator with the Line Chart, although there might be some flaws in signal delivery and that is why it is always good to use a confluence method of trading.
5. Prove your Understanding of Bullish and Bearish Trading opportunities using Line charts. (Demonstrate with screenshots)
The understanding of bullish and bearish trading is core for one's success in the crypto arena, therefore it can't be underrated.
With regard to this lesson, I will elaborate on my understanding of bullish and bearish trading opportunity by using Line Charts together with the MA (Moving Average) indicator.
The MA indicator is one of the best indicators that are used to signal or indicate a market trend reversal.
A trading above the MA means a bullish market, and downward break of the MA signals a bearish reversal, whiles a trading below the MA indicates a bearish market, whereas an upward break signals a bullish reversal.
Bullish Trade Opportunities
As earlier mentioned, the movement of price below MA hints a bearish market, therefore an upward break of the MA gives good bullish trading opportunities to traders, of which they can utilize to open their buying orders.
.png)
The above BTC/USD chart is a trade setup initiated to track a bullish trade opportunity by using a Line Chart.
A break above the MA is very good buying opportunity that a trade can capitalize on to gain some level of profit in the market.
The risk-reward ratio is 1:3.
Bearish Trade Opportunities
The movement of price above MA indicates a bullish market, so a downward break of the MA gives traders good bearish trading opportunities, of which they can use to open their selling orders.
.png)
The above BTC/USD chart is a trade setup established to monitor a bearish trading opportunity by using a Line Chart.
A break below the MA is a signal great signal for a selling opportunity, that a trader can utilize to make profit from the market.
The risk-reward ratio is 1:3.
Line Charts, just as other relevant charts can be utilized to get better trading opportunities in the market.
6. Investigate the Advantages and Disadvantages of Line charts according to your Knowledge.
As there is a normal universal law that implies that anything that has advantages also possesses some related challenges, I will throw light on the positive and negative aspects of Line Charts.
Merits of Line Charts
Line Charts are easy and simple to read and comprehend by traders, more especially beginners, due to the eradication of noise in the market.
As pondered on earlier, Line Charts enable easy identification of the market trend, as well as Resistance and Support levels.
It is very compatible with the relevant technical analysis tools. Without any doubt, the Line Charts are also good when attached with other technical analysis tools.
Line Charts are easy to use or interpret by various traders, they focus much on the closing prices of assets.
Demerits of Line Charts
Line Charts lacks the provision of adequate market information to the trader. Since it leaves other relevant information which are considered in making trading decisions, such as high, low and open prices of assets.
The exhibition of only close prices limits the use cases of Line Charts as compared to the Japanese Candlesticks Chart which provides essential analysis tools such as chart patterns, bullish and bearish candlesticks etc.
Line Charts are normally suitable for long-term traders, sidelining short-term traders because they experience a lot of noise when adjusted to a shorter time frame due to market fluctuations, which limits the profit rate of traders.
The main objective of Line Charts, thus, to display periodic close prices of assets make them less reliable, because they require application of other technical analysis tools for signal confirmations before a trader can confidently open a position.
7. Conclusion
Price Charts are equally good to track market trend, more especially the close prices of assets. They are simple and easy to read and understand, by then, there is the need to apply other good technical analysis tools on them in order to get the best out of the market, because there is no technical analysis tools that provides 100% accurate prediction or results.
Thank you Prof. @dilchamo for this week's interesting lesson.