Different Types of Forex Charts and their Importance
Forex charts are an important component of successful currency trading. It doesn’t matter if the trader is new or old in the market, the need to start reading and understanding these charts is prevalent in order to ensure profitable transactions. That being said, following are the top three types of charts in currency trading and what they predict.
Bar Chart
The bar chart is fairly simple but incredibly easy to do. The variables they represent include the opening, closing, lowest and highest point of a currency transaction. In some cases, they are also known as OHLC. A typical chart, the bar graph comes with the familiar X and Y axis. The vertical line represents the highest and lowest points of the currency during a specific period. The horizontal line represents the opening and closing price of the currency.
Candlestick Chart
The Candlestick chart is actually a more complicated variation of the Bar chart. The two track the same variables in Forex trading although the Candlestick typically presents more data. This is why more Forex traders seem to prefer the Candlestick approach. The name itself is derived from the fact that the chart looks like a candlestick. The body is typically given a specific color to depict the rise or fall of the price during the specific time. Lines at the top and bottom represent other variables of the chart. The wicks or those at the top are the highest price reached by the currency pair as opposed to the tail, which is the lowest price, reached. Colors may be black or white and green or red. Green is usually used to depict a rising price while red is shown as a falling of the price.
Line Chart
The line chart is possibly the simplest of all the Forex charts being used today. It requires only two variables – the lapse of time and the closing price of a currency during that period. It typically tracks just one currency pair at a time but can be configured to watch several types at the same time. When the points are strung together, this could show the movement of the currency from day to day trading.
Those aren’t the only Forex charts available today, but they are definitely the most used. Typically, charting services are readily offered by brokers for their client’s use. Note however that the accuracy and timeliness of the data is usually dependent on the reputation of the charting provider.
Why are They Important?
These charts are the concrete representation of how the Foreign Exchange market has been moving in the past. By providing a summarized history of how the system works, traders will be able to make fairly accurate predictions of the trend. This allows them to position their transactions to anticipate currency profits.
Note that understanding the different variables related to Forex charts is just one step of the process. Traders also need to start understanding the different patterns in the Foreign Exchange market that can easily be spotted through the chart. By identifying and spotting these patterns, traders can decrease their risks and increase their profit margins.
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