Types of Forex charts and how to read them: To be able to study the price movements of a currency pair, you have to be able to look at how it has performed in the past and assess what its present behavior looks like. Visit multibankfx.com
A chart or to be precise a price chart is the first tool that each and every trader who uses technical analysis must learn. A chart basically gives a visual of how the currency pair’s price has moved over the course of time. It helps one visualize all the trading activities that happen in a particular trading period, be it 10 minutes, 4 hours, a day, or a week.
Any financial asset for which the data about its price movements for a certain time period can be accessed could be used for analysis through a forex chart.
Price changes are often caused by a string of seemingly random events and hence we should try and stay ahead of these occurrences and manage our risks well. This is where charting can come to our rescue. Charts are user-friendly because anyone can easily see a chart and understand the price movements. They make it easier to recognize and analyze a currency pair’s movements, patterns, and tendencies.
On the chart, the y-axis (vertical axis) shows the price scale and the x-axis (horizontal axis) shows the time scale.
Prices are marked from left to right across the x-axis.
What does a price chart represent?
A price chart shows any change that takes place in supply and demand.
A chart depicts an aggregate of all the buy and sells transactions that take place for a certain financial instrument, in this case, forex pairs, at any given moment. A chart takes into account every news along with the expectations of future news.
However, when one reaches the future, the real picture could be different from what one expected as a result of which there is a shift in prices. What was first future news now turns into facts that everyone is aware of and thus traders update what they expect from the next set of future news. This is a cycle that keeps repeating.
Charts use a mix of the activities that take place from the number of different market participants, be it humans or algorithms.
The information could be anything right from a transaction done by an exporter, a currency intervention from a central bank, trades by an AI through a hedge fund, or discretionary trades from individual traders. You will find all of these details put together in a visual on charts that can be used by technical traders to assess.
Types of Price Charts
Here are the three most popular types of price charts:
- Line chart
- Bar chart
- Candlestick chart
Line Chart
A simple line chart is essentially a line drawn from a closing price to the following closing price.
This line depicts how the general price movement has been for a certain forex pair in the course of time. Even though it is easy to interpret, the line chart doesn’t always offer much insight about the price behavior within the period.
The only information you gather is at what point the price closed.
However, it becomes helpful for the trader to visualize the trends clearly and compare one closing price with the one that follows.
Typically, this chart reveals the “big picture” view of how the prices move. The line chart also depicts trends in the best possible way which is through a slope.
Some traders emphasize more on the closing level as compared to the open, high, or low levels. If you pay attention to just the close, price fluctuations that take place. n a trading session are not taken into account.
Bar Chart
We’d all like it to be but sadly, this is not a chart at a bar!
A bar chart can be a bit more complicated. Besides showing opening and closing prices it also depicts the highs and lows in addition to the price range in every period.
Bars could keep increasing or decreasing in size either consecutively or perhaps over a series of bars. At the bottom of the vertical bar is the lowest traded price for a particular period of time. whereas the bar at the top shows the highest price paid. The vertical bar itself depicts the forex pair’s entire trading range.
Volatile fluctuations in price lead to large bars As they settle down, the bars respond to the stability by becoming smaller in size. The bar size keeps fluctuating because of how the bars are made. The bar’s height is an indicator of the range that lies between the high and the low price of the bar period.
The price bar also notes opening and closing prices with the help of attached horizontal lines.
The horizontal hash on the bar’s left is the opening price while the horizontal hash on the bar’s right is the closing price. A bar represents a particular time segment that could be a day, one week, or one hour. Make sure you fully comprehend the time frame indicated by each bar.
Candlesticks Charts
The candlestick chart is essentially a bar chart variation. The information is the same as what we see on a bar chart–it is just much more visually appealing.
It is preferred by traders. Not because of the aesthetic value but because these charts are much easier to interpret as well.
Candlestick bars use a vertical line to show the high-to-low range. But in candlestick charting, the larger block (or body) in the middle shows the range between the opening and closing prices. Types of Forex charts and how to read them
Candlesticks are useful in showing if the market sentiment is a bullish or bearish sentiment with the use of colors in bodies. Typically If the middle block is colored. Then the forex currency pair has closed below the opening price. The top represents the opening price while the bottom shows the closing price. When the latter is more than the opening price, the middle block would remain unfilled or hollow. Candlestick charting only acts as a visual representation. As the same details can be seen on a bar chart. Types of Forex charts and how to read them
