Charts are extremely useful. They present information in an organised and visual manner making them quick and easy to read. With a quick glance at a chart you can know so much about how the trading period was.
The three most popular types of charts used in forex trading are line charts, bar charts and candlestick charts. Let’s look at each one in a bit more detail:
A simple clean line chart draws a line from one closing price to another. The stringing together of these lines creates a longer line which shows the general price movement of a currency pair across a period of time. This is the simplest of the three charts and if you are interested purely in price action then this can be quite a good chart to chose due to its simplicity.
This chart is a little bit more complex. It shows information on the opening price and closing price, in addition to the highs and lows for a period. Here, the top of the vertical bar indicates the highest price reached, whilst the bottom of the vertical bar indicates the lowest price hit.
Therefore, the entire bar indicates the trading range of the currency pair as a whole. Meanwhile the horizontal hash on the left of the bar is the opening price, whilst the horizontal hash on the right hand side is the closing price.
You may hear this chart being referred to as a OHLC charts. This is because it indicates the Open, High, the Low and the Close.
On this chart a bar is referring to a single segment of time on the chart, this could be anything from 1 hour, to one day to one week depending on the time frame to which you have your chart set.
The candlestick chart displays exactly the same information as a bar chart, however it does it in a more graphic format.
As with the bar chart, the candlestick chart also indicates the trading range for the currency with the vertical line depicting the high to low range. The block or body of the candlestick, in the middle depicts the range between the opening and closing prices. This block is usually filled or coloured in if the currency pair finished that time period lower than when it opened. On the other hand, if the closing price was higher the block or body will traditionally be left hollow or white. Red and green are also increasing in popularity for candlestick charts where red signifies a lower close for the period and green a higher close for the period.
The candlestick chart has several advantages. These include the fact that the chart is very easy to interpret making it a good place for beginners to star. But these charts have something for everyone, there are many candlestick patterns which are good at identifying turning points, reversals of trends which makes them very useful for more experienced traders as well.