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Charting basics – understanding a trader’s best friend

Article by Paul Buchanan

If you are involved in trading Contracts for Differences (CFDs) you will be very familiar with the range of charts required to keep you informed and in the game.

CFD trading is an alternative method of investing in stocks and shares. Trading in this manner involves speculation on the price movement of the stock, but doesn’t involve the actual purchase of the stock itself. CFDs are contracts made between two traders; a buyer and a seller. The contract stipulates that the buyer will receive any positive difference in a stock’s value between the time at which the contract was created, and the time at which the position was closed. Should the value of the stock drop by contract time, then the buyer will be required to pay the difference to the seller.

Many CFD traders can receive access to markets across the world. They may also trade a range of index-tracking CFDs, which follow the major global indices. In terms of positions, investors can take a long-term, mid-term, or even a day trading stance when it comes to trading CFDs.

Whichever approach the trader adopts towards CFDs trading, losses or gains by their nature are based upon price movements. This means that it is incredibly important for traders to be able to keep track of their trades online and in real time.

It is difficult to imagine anyone being able to successfully engage in CFDs trading<a/> without using price charts, as they are arguably the most useful tool in the trader’s arsenal. Price charts come in three major styles, and it is down to personal preference which type is used. The most commonly used charting types are:

– Line charts: Line Charts display information as a series of data points connected by a single line. By connecting the data points the line shows the relevant trend over a given time period. In CFD trading Line Charts are used to plot two variables such as time and value, and are useful means of highlighting pricing trends.

– Bar charts: Bar Charts display rectangular bars that are sized according to a scale. These bars are typically used to compare two values side-by-side, although more bars can be used as necessary. Most commonly, Bar Charts allows for the convenient graphical representation of asset values against different time periods.

– Candlestick chart: Candlestick Charts are an amalgam of a bar-chart and a line-chart, and are commonly used to describe price fluctuations in stocks, derivatives or currency over given periods of time. They are typically composed of a body, often with a black or white fill, and a wick, which when arranged resembles a candle. These are the charts most commonly used for complex CFD analysis, and are the preferred charting type for many professional traders.

This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.

About the Author

Paul Buchanan writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.

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