Charts play a critical role when it comes to trading in the forex market. Almost all the experienced traders read charts to finalize the opening and closing of a position.
Although there are many different kinds of charts in the forex market, following are the three most famous as well as helpful:
A bar chart is also known as an “OHLC” chart because it indicates the “Open, High, Low and Close” positions of a particular currency pair. A bar chart looks like this:
Here is an image of a single bar of the bar graph:
In this image, there is a single long vertical bar with two horizontal bars attached at the left and right-hand sides.
The long vertical bar indicates the trading range for a currency pair. The top most point is a high and the lowest point is a low. The horizontal bar at the left indicates the opening price and the right one indicates the closing price.
Keep in mind that as a part of analysis you have to read a single piece of data on the chart. Many brokers sometimes refer this piece of data as “bar”. Also, this piece of data is a segment of time which could be one hour, 10 sec, 2 mins, one day, one week, etc. Make sure that you always check the time frame for which the data is being displayed.
There is not much difference between a bar chart and a candlestick chart as both the charts have a similar purpose. However, candlestick charts have a nice look as well as attractive terms which make the chart reading a bit of fun. A single candlestick looks like this:
The candlestick in the chart has a big body in the middle indicating the opening, and closing prices and the end points of sticks at the upper and lower parts of the body indicates the highest price for the day and lowest price for the day.
A black color body indicates that the price of a currency pair closed lower than the opening price while a white colored body indicates the price closed is higher than the price opened.
A black and white candlestick chart looks like this:
There is one more color combination that you will see while reading the candlestick charts. These are Red and Green. The vibrant colors are used to make the chart easier to read. Of course, who likes that boring old black and white television? The red and green candlestick looks like this:
So, when the price closes higher than the opening price, the candlestick turns green, and when it closes at the lower price, it turns red. The candlestick chart looks like this:
Although same information is shown in a bar chart, the candlestick charts are just easy to read as it is colored. Other advantages of candlestick chart are:
- It is easy to remember the terms used in a candlestick chart which makes it easy to remember it. One such term is shooting star! Isn’t its interesting?
- Easy on eyes which make trading easy and interesting.
- A good way for a beginner to understand the forex market.
- Easy to identify the reversal of price.
Line charts are the simplest chart that connects a closing point of the price to another closing point. Ultimately this makes a line that shows the price movement of a currency pair. You can check the chart for a day, month, week, ten minutes, one year, etc. Although it is easy to read, its does not give out as much information as a candlestick or a bar chart. A line chart looks like this: