Charting is an essential skill for every trader to learn. What’s more, Forex charts are one of the most important tools to use when conducting technical analysis.
Different patterns express a visualized picture of how asset prices move within a given timeframe. Additionally, they show historical price action needed to make accurate predictions taking into account specific market conditions.
When you know how to read Forex charts, you can visually analyze different currency pairs along with their tendencies and movement patterns. In this article, we will discuss 3 major types of Forex charts beginners should know and use in their Forex strategies.
Forex charts come as the asset price visualization tool. They also aggregate buy and sell transactions to represent assets’ supply and demand. A chart is a comprehensive instrument that incorporates different market factors. They include news, market sentiments, and traders’ expectations. If the real situation is different from those expectations, the price is likely to shift.
Forex trading involves many different market participants and players. Moreover, it features never-ending currency circulation. Charts appear to be one of the most effective tools to track the activity of millions of parties engaged.
Here are the three most common and prevalent Forex chart types the majority of traders use every day to conduct Forex day trading techniques:
More experienced traders use some other types of chart patterns to boost their Forex trading approach and take it to a higher level.
Now, let’s have a closer look at each type to see how it works.
Line charts are the simplest to read and understand. It represents an easy line graph we all know from high school. So, traders of any level will find it easy to recognize this particular chart type. It is used to track one closing price to the next one.
Traders use it to see how the asset price moves in general over a certain period. The main drawback here is that line charts show only general movement with no specific market insights. You know the closing price but you cannot see what actually influenced that price or what happened within the underlying timeframe.
So, this one helps to see the macro picture as well as spot trends.
It is a more complex type used to track both opening and closing asset prices of a currency pair. Additionally, traders can identify highs and lows as well as price ranges over a need period.
Bars can be different in size and located in the middle, bottom, or on top of the chart. The bottom bars depict the lowest asset price traded in a given period. Top bars show the highest price, while vertical bars express the trading range of a currency pair.
If you see large bars on a chart, it is a sign of increasing price fluctuation and volatility. Oppositely, when bars become smaller, it means the price action becomes steadier.
Each bar represents a specific timeframe. It can be a minute, an hour, a day, or even a week. So, you need to know exactly which period a chosen bar represents. Otherwise, you will not be able to read the chart properly.
Candlesticks are a more complex variation of bars. Generally, they depict similar information however in a bit different way. Bars express price moves in quite a straightforward way. With candlesticks, you can benefit from a nice and easier-to-read format.
What really makes it simpler to read candlesticks is that they come in different colors. As a rule, they are red and green making it faster for Forex traders to visualize either bullish or bearish market sentiments:
As you can see, chart patterns offer different ways to represent market data in graphs. Each chart type comes with its unique characteristics traders need to know how to interpret and read. It will help them make the most of technical analysis.
With different Forex charts, traders can have a deeper market overview. One can retrieve historical data and compare it with current market conditions to make accurate predictions. What’s more, some charts provide traders with essential market insights needed to decide how the price will move further.
The 3 major chart types include lines, bars, and candlesticks. Some of them are easy to read while others have a more complicated structure with more data to express in a given period. Candlesticks are the most commonly used type as it provides nicer and deeper information about price and market sentiments.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.