Forex Charts – Line, Bar, and Candlestick Charts
Forex technical analysis is one of two ways to analyze the foreign exchange markets. It works by studying the movement of prices, while the other method, fundamental analysis, looks at external economic factors such as the strength of the national economy, political events and so forth.
Studying price movement with Forex technical analysis involves charts. The theory of it is that if you look at the historical records of how prices have moved in the past, you can identify tendencies and trends which will mean that you can predict how the prices will move in the future. Then as soon as you spot an emerging pattern that fits your system, you have a trading opportunity.
The following three chart types are widely used:
1. Line charts
The name of line chart tells it all. It is a line connecting the closing prices. Ups and downs of that line show the movement of the currency pair. Unfortunately this type of price does not show you any information on price behavior within the time period. You can see only the close price.
- Second chart type is called bar chart
A bar chart will show a series of vertical lines or bars. The top of the line represents the highest price during that time period. The bottom of the line represents the low. A short horizontal bar on the left side indicates the opening price and a short horizontal bar on the right side indicates the closing price.
That’s why the bar charts also called OHLC charts. It stands for open, high, low and close.
3. Candlestick charts
Candlestick chart gives the same information as bar chart. The only difference is that candlestick chart gives better visual representation of price tendency inside the time period.
You have the same vertical line with the high at the top and the low at the bottom, but there is also a wide block in the middle showing the gap between the opening and closing price. The blocks will be filled white (for a rising price) and black (for a falling price) or more often these days they are colored. Colors can vary but a common combination is green or blue for rising and red for falling.
Most people prefer candlestick charts over bar charts because they are easier to interpret. It is much easier to see turning points in the market using candlestick charts. You can immediately see where the market reversed from an upward to a downward trend and vice versa.
Successful traders always take advantage of emerging trend. You probably heard the famous expression ‘Trend is your friend’. Therefore the ability to recognize the forming trend is of the major importance of trader’s success. Candlestick chart is a great tool in helping to develop this skill.
