Written by Robert McKinley

Forex Charts

It is simple: Forex traders depend on charts. So it is important that you become familiar with them.

The three most commonly used types of charts are:

1. Line charts
2. Bar charts
3. Candlestick charts

Line Charts

A line chart shows us a series of closing prices, which are connected by lines. Follow the lines and you will see the price movements of a currency pair at certain time intervals over a defined period of time.

While line charts are very simple to understand, they are not used as often as other types of charts because they do not show enough information for traders to make good trading decisions. The problem is not what a line chart shows, but rather what it does not show. You will soon learn that other types of charts include much more information and are, therefore, much more useful. Nevertheless, the line chart is included here so you know what they are.

Below is an example of a typical line chart:

Bar Charts

Bar charts show both closing and opening prices and the highs and lows of a currency pair at certain time intervals over a defined period of time. The lowest traded price for the time period is indicated by the bottom-most point on the vertical bar and the highest traded price is indicated by the top-most point on the vertical bar.

The small horizontal line (a “hash”) on the left side of the vertical bar indicates the opening price and the hash on the right side of the vertical bar indicates the closing price. So you can see that a bar chart shows a currency pair’s overall trading range within the period of time encompassed by the chart.

Below is an example of a typical bar chart:

What, exactly, is a “bar”?

The term “bar” as used in Forex charting is a line that represents one segment of time. It can represent one day, one week, or one hour, depending on the intervals of time of the particular chart you are looking at. So when you are looking at a chart, be sure to know what time frame it is referencing.

Below, is an example of a price bar:

Here is how it works:

• OPEN (The opening price) is indicated by the short horizontal bar on the left.
• HIGH (The highest price of the time period) is indicated by the top-most point of the vertical line.
• LOW (The lowest price of the time period) is indicated by the bottom-most point of the vertical line.
• CLOSE (The closing price) is indicated by the short horizontal bar on the right.

Candlestick Charts

Candlestick charts are similar to bar charts but with more information. They are also created in either black and white or multi-color.

In addition to showing the high-to-low range of the currency, a candlestick chart also has a larger block in the middle, which indicates the range between the opening and closing prices. Even more, typically, when the block in the middle is filled in or colored in, it means that the currency closed at a lower price than it opened.

You will see in the example below that the block on the left is white (or “hollow”) and the block on the right is black (or “filled in”).

• The block on the left is white (or hollow) because the currency closed at a higher price than it opened.
• The block on the right is black (or it could be colored) because the currency closed at a lower price than it opened.

Below is an example of black and white candlestick bars:

Below, is an example of a color version of the same candlestick bars:

Green replaces the white (hollow) and red replaces the black. In all other respects it is the same. Some traders prefer the color bars because the color makes it easier and faster to read or identify the trends and possible reversal points.

Below is an example of a candlestick chart:

Candlestick charts as with other charts are visual aids. However, candlestick charts have the following advantages:

• They are easy to interpret, both visually and structurally.
• As you will learn later, they have unique names, which make it easier to remember what the various patterns mean.
• They make it easier to identify such things as market turning points (a reversal from an uptrend to a downtrend and vice-versa)

Again, you can learn more about candlestick charts and charting in general in other training articles here at BestForexStrategies.com.

The next lesson is Review of Forex Analysis And Forex Charts.