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Types of Forex Charts and How To Read Them

A forex chart, in its purest form, is a graphical representation of price movement of a security in the financial market. Forex charts show the historical behavior of price movements across varying time frames.

Technical analysts rely on forex charts to view past price movements as a way of gaining valuable insight on how the price is likely to move in the future. Forex brokers provide platforms such as MT4 and MT5 that come with charts that traders can use to make decisions when it comes to trading currency pairs in the forex market.

In forex, there are three basic types of charts

Line Chart

A line chart is the simplest forex chart that appears as a line showing one closing price to the next closing price.  The line, in this case, connects price at different times, therefore, providing valuable information showing how price moves during the day.

In the case of a daily chart, the line chart will show the closing price of a currency pair at the end of each day. Similarly, in the case of a weekly chart, the line chart will show the closing price of each week.

The simplicity of a line chart makes it possible to carry out technical analysis with ease as it is possible to detect patterns such as double tops and bottom.

Bar Chart

A bar chart is a detailed forex chart that relies on bars to show opening and closing prices that line charts are devoid of.  In addition to showing opening and closing price, a bar chart also shows highs and lows.

A bar chart has three components

A vertical line indicates the lowest traded price at a given time period, as well as the highest price traded.

Likewise, it comes with a small point on the left showing the opening level at a given time period.

One small point on the right of the vertical bar indicates the closing level.

Conversely bar charts are commonly referred to as OHLC as they indicate the open High Low and Close of a particular currency.

Candle Sticks Chart

Candle Stick charts are the most popular charts in the forex market. Just like a bar chart, a candlestick chart shows detailed information at a given period but in a pretty and graphic format.  These types of charts use candlesticks to show price movements.

A candlestick comes with a body, also known as a real body that shows the opening and closing prices. It also features a shadow that shows the highest price that a currency pair clocked as well as the lowest price point.

How to Read Forex Charts

All the above mentioned charts have time along the horizontal axis (x axis) and price on the vertical axis (y axis).  The dates and times on forex charts vary depending on how a trader zooms the chart. The more zoomed one is the more historical price action, one is likely to see.

Price in forex charts move from left to right. If from the left side to the right side of a bar, line, or candle stick chart, the exchange rate of a currency pair has fallen, then the pair is said to be in a downtrend and sellers in control

Similarly if price from the left side to the right side has moved up, then the currency pair is said to be in an uptrend and buyers in control.

 

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Ruchi Gupta

Ruchi Gupta covers various beats from finance to technology and from lifestyle to hobbies. She has an MBA in Finance. Ruchi enjoys writing on celebrities and political news. She likes traveling and exploring places.

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