Forex Charts are necessary indicators for beginners and expert traders alike. Of course, there are different charts and each chart has a specific purpose. It is the job of the trader to determine which charts are relevant and what the raw data indicates. Charts are read independently and then taken as a whole. Think of it as another expert opinion. This article will discuss several of the most basic and relevant charts in Forex.
Forex Charts: Candlestick Charts
Candlestick charts are used to determine price movement within a specific period of time i.e. opening, midday, closing prices, etc. on a per minute, a few minutes, hourly, daily, weekly, etc. basis. It derived its name from the long rectangular candle like appearance on the chart that is topped or bottomed by a single line in the middle that looks like s bottom and top wick. The body, usually black or white, indicates the opening and closing prices while the wicks indicate the high and low trading prices within a specific timeframe.
Why are these information important? It is simply, because opening and closing prices determine the trend for the current trading day and proceeding trading days. The highest and lowest price achieved determines the sway of the momentum of a particular derivative within a specific period.
Forex Charts: Bar Charts
Bar charts populate the inside of two lines forming a 45-degree angle. The horizontal or vertical lines show the length and proportional value for each movement. Simply put, bar charts provide categorical data, grouped together based on a specific context such as day, week, month, age group, size, amount, percentage, etc.
For more complex data analysis, bar charts can be grouped and/or stacked. Simply put for one category there are two or more bars, which can be differently colored, usually placed side by side or on top of each other. For example, a Forex trader comparing derivatives can mark the vertical bar to determine amount of movement while the horizontal bar is populated by different stocks.
Forex Charts: Line charts
Line charts display specific information based on points, connected by a line. This is used for different purposes but in most cases, it is used to determine data trends over a specific length of time. These points when connected to each other show a steady line, incline or decline. Line charts can also be grouped into several lines in order to show a specific trend. One example is the Bollinger band, which is the combination of three lines in one charts, and show overbought or oversold thresholds. The resulting divergence can be thin or thick and the more it diverges, the thicker the bands. This indicates volatility.
Whatever type of Forex charts are used, a trader who knows his/her basics will be able to determine the relevance of the information as well as the particular situation it points to. The best traders will then consult with different indicators to make sure that the data presented by one chart is seconded by other charts. And then formulate a plan of action in the shortest span of time possible.