The Types Of Charts Used in Forex Trading

Overview: Forex Charts

A forex chart gives a visual representation of the historical history of the comparative market movements among currency pairs over various time frames. Such charts are used by forex traders and day traders to spot correlations that can indicate reversals, continuations, access locations, and outputs.

To achieve a competitive edge in forex markets, many traders utilize forex charting software platforms in tandem with certain other innovations such as statistical forecasting applications and internet trading to estimate the likely direction of a specific currency pair.

Reading Forex Charts

The bid and ask price fluctuations are far more visible and easy to detect on FX charts, just as they are on other assets. Typically, these movements will be displayed in the form of lines, columns, or other shapes. The price increases will also be documented against that tick, a minute, an hour, a day, or a higher time frame.

In terms of price and time representations, all charts, whether for currencies, commodities, or anything else, are essentially the same. The x-axis, or vertical line, depicts the time during which the price increased or decreased; the y-axis, or horizontal line, depicts the price at a specific point in time.

Traders can see the values that were stated in the past since a chart has a temporal dimension. Because we’re looking at Forex charts, this value will be the currency pair’s exchange rate.

3 Types Of Forex Charts

Nowadays most Forex brokers provide their customers with complimentary charts as part of their trading package. Additionally, when traders install trading programs, the charts would be made accessible to them instantly.

Although every chart depicts a market movement over a specific period of time, whether in Forex, stocks or any other marketplace, there are several distinct types of Forex charts with varied presentation approaches. Specifically, the far more popular charts are as follows:

1. Line Charts

The line chart has been the most straightforward and simplest value indicator in Forex. Essentially, it draws a diagram with several pricing points for a specific asset and then connects the spots with a continuous line. Because they merely show the closing values of currency pairings, line charts are particularly easy to read. Traders who want more sophisticated information, such as beginning or highest/lowest prices, can’t acquire it from a line chart.

Although it is straightforward to comprehend, the line chart can sometimes not provide the trader with very much information about price behavior over time. It does, however, make it easier for the trader to spot trends and graphically compare closing prices from one period to the next. This style of chart is typically used to provide a larger picture view of price fluctuations. The line chart, which is merely the slope of the line, also displays patterns the best.

2. Bar Charts

The bar charts are much more difficult and complicated than the preceding one and show even more prices. This bar simply indicates four alternative values for a currency pair over a defined time span – minutes, days, times, or weeks.

A trader could see the price bracket from each period using bar charts. From one bar to another, or over a spectrum of bars, the size of the bars may change. The cheapest traded price for that time frame is at the bottom of the vertical bar, while the highest price paid is at the top. The bars grow larger as the price variations become more volatile. The bars get smaller as the price changes get quieter.

3. Candlestick Chart

One of the most effective methods for viewing Forex price fluctuations over time is a candlestick chart. A version of the bar chart is the candlestick chart. Candlestick charts display the same price data as a bar chart, but in a more visually appealing manner. This chart is popular among traders since it is not only more attractive but also clearer.

The broader wedge (or body) in the center of a candlestick chart, on the other hand, represents the range between starting and finishing prices. Candlesticks exhibit “frames” in various hues to assist comprehend bullish or bearish moods. If the middle block is packed or colored in, the currency pair has traditionally ended cheaper than it originated.

Final Thoughts

Traders can use a variety of price charts to keep track of the foreign exchange market. However, when you first start reading price charts, remember to keep things basic. Look for the right mix of getting sufficient knowledge on the chart to make smart trading selections, and not as much knowledge that your head becomes immobilized and unable to make any decisions as you discover your chart inclinations.