Forex Chart Types

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Forex Chart Types

Thursday, 19 June 2008 15:30

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The beauty of technical analysis lays in the ability to predict future by looking at the past. That's where forex charts come handy. Don't worry, it has nothing to do with geometry. Charts are a graphical description of forex price activity over a specific period of time. There are a lot of chart types but the most favorite ones are:

Line Chart
Bar or OHLC Chart
Candlestick Chart

Reading Line Charts

The name speaks for itself – forex line chart consists of data points which represent closing prices and are connected by lines. When the chart is complete for a specific period of time it looks simply like a high school graph you used to make. Forex line chart is the basic type of chart and gives a trader a chance to observe the price changes.

Reading Bar Charts

Bar chart unfortunately has nothing to do with beer or snooker. However compared to line chart that only shows closing price bar chart also shows an opening price, highest price and lowest price all at the same time. So instead of a continuous line you get short vertical "bars" with little left and right "tails". The left tail shows the opening price and the right tail represents the closing price. Bar Chart is often called OHLC which stands for Open High Low Chart.

So, just so summarize:

Open = Opening price of the period represented by tiny horizontal tail on the left side

High = Highest price of the period represented by the TOP of the whole vertical bar
Low = Lowest price of the period represented by the BOTTOM of the whole vertical bar
Close = Closing price of the period represented by tiny horizontal tail on the right side

Reading Candlestick Charts

Candlestick charts have exactly the same "features" as a bar chart with open, high, low and close prices within one vertical bar, except that the bar is more like a larger block which is down right in the middle of the vertical line and it shows the range of opening and closing prices. Colors are also involved in Candlestick charts.

If the block is green that tells us that the closing price is higher than the opening price (the price is moving uptrend/bullish).

If the block is red that tells us that the closing price is lower than the opening price (the price is moving downtrend/bearish)

Candlestick charts are most favored among forex traders because of its colors! It is easier to focus on something and remember it better if it has colors (true fact!).