Top Three Alternatives To Candlestick Charts

As candlestick charts are the most popular and widely used charting style we tend to focus on them solely but it is important to remember that there are traders out there using a wide variety of different charting styles. If you have never seen any other charting styles before it is definitely worth taking a look and exploring some of the other options as you never know, you might come across something that you really gel with and feel better able to trade. So, with that in mind let’s take a look at the top three charting style alternatives to candlestick charts and discuss the pros and cons of each one.  

Renko Charts (Available On NinjaTrader)

Renko charts are really fascinating. Essentially these charts will only print a new bar once price has moved x amount of pips in one direction or another, whereby you set the pip distance yourself.  So let’s say we have a 20 pip Renko bar set up and we are at price point 50; a new Renko bar will only print at either price point 70 or 30. Price can chop around as much as it likes within those levels but a new Renko bar will only print once 20 pips has been achieved in either direction. So Renko bars only consider price, not time. You could have one Renko bar that forms in 5 minutes and one that forms in 5 hours, it is simply down to the pips distance being achieved in either direction.renko

The chart above shows a 60 pip Renko chart in GBPNZD over the last 30 days. Each Renko bar only prints once price has travelled 60 pips in one direction. Notice how there are far fewer bars than on a normal time chart?

  • Pros:   Gives a much smoother view of the market. Great for clearly identifying trend and removing noise.
  • Cons: As there is no time consideration only a price consideration, bars can form at very different speeds making it a little tricky to trade.

Range Charts (Available On NinjaTrader)

Range bars are similar to Renko bars in that once again they ignore time and focus solely on price. The difference with Range bars however, is that unlike Renko bars which need to see price move x amount of pips in one direction, Range bars only need need price to move x amount of pips before they print.  So let’s say we have our 20 pip Range bars and we start at price point 50 again, well if price moved down to 45 then up to 65 a new Range bar would print as price has covered 20 pips. So again, Renko bars need price to move x amount in one direction, Range bars just need price to move x amount.rangebars

The chart above shows a 60 pip Range chart over the last 30 days in GBPNZD. Each Range bar prints once price has covered 20 pips of movement.  Notice again how there are far fewer candles than on a normal time chart but there are more than on a Renko chart?

  • Pros: Again, gives a much smoother view of the market. Makes trend easier to spot and clears up market noise, removing the long periods of choppy consolidation seen on time charts.
  • Cons: Again, the lack of a time consideration means that bars can form at different speeds and as such, makes it very difficult to trade them consistently.

Line Charts (Available on MT4)

Line Charts are perhaps one of the simplest charting styles out there and as such tend to be quite popular. Instead of printing a candle or a bar, line charts simply connect the closing price of each session in a continuous line. Line charts don’t display the open, high or low of the session just the closing price.

line

The chart above shows a H4 line chart of GBPNZD over the roughly the last 30 days. The closing price of each 4 hour session generates a new data point on the line.

  • Pros: A very simplistic way to view the market. Easy to spot trends. Removes noise.
  • Cons: Doesn’t display the full data story and as such can lead to poor trading decisions. For example, stops based on line charts may not be properly positioned especially where support and resistance levels are concerned.

So how can you use these different charting styles in your trading?

Limitations aside, many people turn to alternative charting styles because they feel they are better able to trade the market when presented differently, e.g in of the forms we have looked at above.

Looking at Range & Renko charts for example, can really help to give you a clearer view of what direction the market is taking. Periods of consolidation present on time charts whereby price is simply oscillating within a shallow range, are totally removed on Range & Renko charts provided you don’t use too small a pip increment.  Generally sticking to around 30 or more on the majors and 60 or more on the crosses will give you a much cleaner look at price.  By the same token, using these different charting styles can help trend traders stay in traders for longer. The price and direction focus of Range & Renko charts is a big plus for trend traders. The periods of consolidation on time charts which can start to “feel like a base” or a pending reversal and lead to premature exits are totally avoided.

Another really interesting avenue to explore is to apply indicators to these charts. Using traditional indicators such as stochastics or MACD on Range & Renko charts can give you a totally new view of the markets and uncover new trading opportunities. Indeed, our own Order Flow indicators can be successfully applied to these charting styles and so this is certainly an area for you to explore.

In the end, as with everything in trading, it all comes down to how useful you find it and how well you are able to trade it. The issue of timing can make these different charting styles a little trickier to trade but their clear benefits can give you a big edge in your trading so it is definitely worth trying out these different charting styles if you haven’t already; You might find you much prefer them!

If, however, you decide to stick with candlestick charts then be sure to check out some of our great candlestick material: