Understanding Forex charts is not as tough as most people believe. The charts themselves are quite common and the only changing thing would be the variables. To be an effective Forex trader however, individuals would need to make sure that they understand exactly how these charts work. That being said, following are the different chart types used in Foreign Exchange today.
The most common and possibly the most recognizable is the line chart. This type of visual representation basically connects the different closing prices in relation to their schedule. These interconnected dots form a line, providing a clear view of the currency pair’s price movement. Through this study of historical information, the trader can provide a fairly accurate judgment of whether the price will continue to rise or fall. From there, they have the option of buying or selling depending on what profits them best.
This is called the candlestick chart because the visual representation looks like candlesticks. They are actually the most used Forex charts due to their accuracy. In fact, even the stock market using the candlestick chart to arrive at intelligent predictions. It provides the Open, Close, High and Low information of a currency pair within a specific length of time. The main difference between candlestick and bar Forex charts is that the latter does not display any colors. Traders today use red indicates that the currency closed at a lower amount than the opening price. Green is used to indicate the bullish price or closing at higher price than the opening.
Also known as OHLC charts, Bar Charts are much more comprehensive than line charts, allowing traders to glean more information from the data. The OHLC actually stands for “Open, High, Low and Close”, a summation of the information that can be seen through the chart. Basically, the data provided here is the same with a candlestick chart, but the latter is displayed at a more appealing design. The vertical line indicates the price of the currency while the horizontal line represents the closing (right) and opening (left) of the currencies.
Invented by the Japanese, this type of chart does not take time into account. Instead, the chart only shows price changes in the market. They are still not that popular but some traders are making use of them.
Note that the use of Forex charts is not the only method of trading in the currency market. Some traders prefer to use the economical and political situation of a country in deciding whether their currency will rise or fall. Regardless of the method used however, traders should take the time to learn as much as they can in currency trading. By doing this, they will be able to accumulate both experience and knowledge that could help them become a better and profitable trader.