Types of Forex Charts
It’s very important for you as a forex trader to know how to make sense of a forex chart.
A forex chart is a graphical representation of the exchange rate between two currencies.
There are three main types of Forex charts, namely:
- Line charts
- Bar charts
- Candlestick charts
Technical analysis is the study and investigation of the market behavior using charts.
Trading systems enable trailers to analyse the market using various types of charts.
Chart analysis requires the development of visual skills.
To develop these skills, let’s first learn about the three most common types of graphs.
1. Line Chart
Line charts consist of a line being drawn from one closing price to the next and are the easiest for beginner traders to understand.
Line charts are used to indicate both historic and current price movement of a currency pair.
A line chart is the most simple and basic of the three types of charts.
It is created by connecting various price units over a given time period, each point only represents the closing price.
The line connecting all the points creates a chart that helps to identify trading trends as well as support and resistance levels.
Technical analysis usually requires more specific information than that provided by a line chart so this chart is appropriate for in-depth analysis.
2. Bar Chart
Bar charts show the Opening, Closing, High and Low of currency prices.
The bar itself represents the overall trading range of a currency pair with the horizontal sidelines indicating the opening price on the left and the closing price on the right.
The top of the bar shows the highest paid price while the bottom of the bar shows the lowest paid price.
Bar charts are used to identify the expansion or contraction of price ranges.
A bar chart includes lines that present different price levels over a given time frame distributed a graphical diagram.
These lines to note the following information.
- High Price
- This is the highest point of the bar representing the maximum bullish power for that bar.
- Opening Price
- Displayed to the left the bars body representing the price from the bar opened. The bar’s opening price is usually identical to the closing price of the preceding bar.
- Closing Price
- Reveals the results of the fight between the bulls and the bears over the course of that bar. The closer to the closing prices to the high price, stronger the bulls victory over the bears over the course of that bar.
- Low Price
- The low point of the bar representing the strongest point of bears reached over the course of that bar. The distance between the bars high and low points signifies the intensity of the battle between the bulls and the bears.
A short bar indicates a calm quiet market while the long bar signifying volatile story market.
3. Japanese candlesticks
Candlestick charts display High, Low, Opening and Closing prices and are considered the most detailed of all three types of charts.
The red and green parts of the candle, known as the “body”, show the difference between the opening and the closing prices at a pre-specified moment or time period.
If the opening price is lower than the closing price, then the candle turns green.
If the opening price is higher than the closing price, then the candle turns red.
The black lines above and below the candle are called “wicks” or “shadows” and display the lowest and highest reached prices during a pre-specified moment or time period.
The Japanese candlesticks chart is similar to the bar chart in that it also represents the closing, opening, high and low points for that bar, but using a different display which helps identify various trading patterns.
The different to the charts is that in the Japanese candlesticks chart, the closing and opening prices are enclosed in a rectangle.
The use of different colors illustrate the increase or decrease in price over the course of the bar.
This is the most common type of chart.
Choosing the Chart Type on MT4
On MT4, you can choose how prices are viewed on each chart.
Pick a chart and click on an icon to select a bar, line or candlestick view.
When the cursor hovers over the icon its name will show – a helpful feature when getting to know each icon.
Click on Charts in the top toolbar also lets you choose the chart type from the dropdown menu.
Each chart types have different merits and demerits for traders as they prefer.
The most popular chart type would be the “Candlestick Chart” which contains all merits other chart types have.