Learn How to Read Different Types of Forex Charts

A growing number of investors are engaging in forex trading to earn attractive profits through speculation and analysis. As a result, many of them use quantitative, technical and fundamental analysis and methods for predicting currency pair movements. Thus, while some traders rely on forex trading news, updates, rate of interest and other variables to take appropriate decision, others prefer using forex charts and technical indicators for arriving at any investment related conclusions. However, irrespective of the method used for trading, it’s crucial that one learns how to read forex charts and indicators. Here, learn how to read different types of forex charts.

Significance of forex charts

Simply put, a forex chart is a graphical representation of the rate of exchange between two different currencies. It depicts the manner in which the rate of exchange for different currency pair has altered/changed over a period of time. When it comes to investing in forex currency pairs, traders must understand and analyze different types of forex charts and take adequate investment related decisions.

The Importance of Forex Chart Time Frame

The time displayed on a forex chart depends directly on the time frame that a broker selects. However, the default time frame for forex trading charts is set at daily i.e. 1D time frame. As a result, every point on the forex graph such as a bar or candle basically represents the data/figure for only one day. Hence, when a trader sets the timeframe to sixty minutes, then each and every point on the graphical chart represents sixty minutes of trading figure/data. Thus, forex traders can opt for different time frames, depending upon their requirement and convenience. Typically, traders can either set low timeframes at one minute or opt for a higher one at 1 month.

Learning to Read Different Types of Forex Charts

In order to trade efficiently, traders must learn how to read different types of forex charts. Forex traders and analysts, around the globe, essentially use four different types of forex charts, based on their trading goals and the information that they’re specifically searching for. These include bar charts, line charts, point and figure charts as well as candlestick charts.

Line Charts

Line chart is one the basic types of chart available to traders. It simply represents the closing price over a definite period of time. The line chart is created by joining several dots (i.e. joining the closing prices for each and every period over a specified timeframe). The line chart does not offer much insight and information around intraday movement of the prices. However, a good number of traders place a great deal of importance on the closing prices instead of the low, high or opening prices for a specified period of time. With line charts, one can spot the market trends and movements easily.

Bar Charts

Bar charts are formed by joining a number of bars, which displays the closing and opening prices in addition to the low and high prices for the specified bar period. The bar chart is formed by a number of vertically drawn lines, which represent the price for a specific period with a horizontally drawn dash on either side, which display the closing and opening prices. While, the opening currency price is represented by the horizontally drawn dash on the left hand side of the line, the closing currency price can be spotted on the right hand side of the line.  Thus, if the opening currency price is lower in comparison to the closing currency price, the line is shaded in black and represents a rise and vice versa when the line is shaded red in color.

Candlestick Charts

Candlestick chart patterns are immensely popular among investors in all parts of the globe. The chart was first used in Japan and is ideal for determining the market conditions and movements. These charts basically feature a thin vertically drawn line that represents the pricing for a specified period, which is shaded in different types of colors depending upon the position of the stock (i.e. whether it ended lower or higher). Hence, a period during which the stock prices fell will feature a black or red candlestick patter whereas the time frame during when the prices rose will feature a clear or white candlestick pattern. Besides, those days when the closing and opening prices are similar won’t feature any rectangle or wide pattern anywhere in the chart.

Point and Figure Forex Charts

This is not a very common type of chart but display the movements of price without any concerns around volume or time. As a result, the point and figure charts enable traders in acquiring a better view of the overall market trend. These charts represent a number of Os and Xs. While, the Xs display upward trend and pricing, the Os show the downward trend and pricing. The chart also includes other letters and numbers that display the months. Every box included in the forex chart shows the price range that keeps fluctuating on the basis of the stock pricing.