The Use Of Charts In Forex Trading


Forex charts are one of the most widely used trading tools. Average traders claim that information represented on these charts help predict price movements. It is true. Graphs have several advantages to a person who has no time to study or research the currency market as they buy and sell positions. However, if a trader wants to benefit from daily charts, he or she should be able to use them correctly. This article explains the types of charts used in Forex Trading.

Type of Charts

There are three main types of figures.

1. Candlestick Charts: This figure displays four important variables – the high price, low price, opening price and closing prices. It gets its name because of its structure. It has a vertical real body, an upper and lower wick. Candlestick charts do not involve complicated mathematical calculations. The length of the real body highlights the range between the opening and closing prices for a given time period and thereby interprets market sentiment. The time period could be a minute, an hour, a single day or a month. The colors are important when reading a candlestick figure. An unfilled candle indicates that the opening price of a security is lower than its closing price for the given trading period. Some websites show this candle in green color. In this case, the top of the bar represents the closing price while the bottom represents the opening price. If the candle is colored, the closing price is lower than the opening price of that security. It is usually colored black or red. In this case, the top of the bar represents the opening price while the bottom displays the closing price. The fine lines that extend outward from the two edges are called shadows. They are also referred to as wicks or tails.

2. Bar Charts: This is the most popular type among the three types of Forex trading charts. It displays the same information as a candlestick figure namely high price, low price, open and closing prices. It uses bars to represent these four variables without the colors of the candlestick charting technique. Some bar charts use colors. The top of the bar shows the highest priced traded while the bottom of the vertical bar represents the lowest price a security traded during the given time period. The closing price is displayed on the right of the bar while the opening price is displayed on the left side. Bar charts are better than candlestick illustrations when it comes to predicting price movements. It provides the necessary trading information at a glance.

3. Line charts: Line charts are the simplest of all the three types. It looks like resembles a regular graph in this marking. Unlike candlestick and bar charts it represents only the closing price of a security. It is represented with a single line. The line connects the single prices for a given time period. Thus, in comparison to the other two types it provides the least information and hence is not widely used.

Source by Philip V Naparan

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