- Forex Charts Basics
- Graphic Chart Types on Forex
- Forex Bar Charts and Candlestick Charts
- Forex Charts in Technical Analysis
Successful traders always base their decision on the results of market analysis. Otherwise, it’s gambling, not trading. A Forex chart is the key tool to seeing the big picture and planning ahead. Today we learn how to analyze Forex charts and use them for the most profitable trading outcomes.
Forex Charts Basics
First things first, what is a chart on Forex? Very simple: it is a graphic representation of the price movement that serves as trader’s primary source of information. As soon as you learn to analyze graphic Forex charts by noticing patterns, building forecasts and making conclusions about past events, you pretty much have everything you need to start trading.
And luckily, Forex charts basics are straightforward enough to be tackled rather quickly. Possibly the best way to learn how to analyze technical Forex charts is by opening a demo version of the trading terminal and seeing everything we will talk about here in action. Don’t worry about pressing the wrong button, demo accounts are entirely simulated, which makes them ideal for learning purposes.
The very first thing you need to know is that there are several solutions to visualizing price movement on Forex. Therefore, there are a few chart types that essentially carry the same data, just in slightly different manners. So, what are these chart types on Forex?
Graphic Chart Types on Forex
There are three most commonly used types of charts on Forex. The most basic one of them is the line chart. It forms by connecting the closing price points over the selected period of time. Whenever necessary, a trader can adjust the default setting and the line will connect any other values, such as opening, highest or lowest values.
When you analyze technical Forex charts, a line chart can assist with spotting trends. As there is only one line, it appears as a minimalistic wave that ultimately reflects the market's behavior. But although line charts are often implemented in analysis, they very rarely serve as a tool for establishing entry and exit points. This is where other two chart types, the bar and the candlesticks, step in.
Forex Bar Charts and Candlestick Charts
Reading Forex bar charts is a little more elaborate than analysing the line chart. Simply because there is more data encrypted in each of the chart’s elements. Bars are graphic units that look like vertical lines with two short horizontal branches on each side. The top of the bar indicates the highest value within the chosen time period, and the lowest is at the bottom.
The positioning of the horizontal branches depends on which value was higher: at the open or at the close. Opening price is always on the left side of the bar, and the closing is on the right. And whichever is closer to the top was the highest. When the closing price exceeds the opening one, the bar is considered bullish and in many default settings will be green, the opposite scenario will result in the formation of a bearish bar, which is usually red.
Reading candlestick charts Forex is very similar. In this case the chart elements are called candlesticks or candles, and each of them consists of the same data pieces as a bar. But instead of being a thin line, candles appear as vertical boxes with vertical lines at the top and bottom, referred to as wicks or shadows.
The peaks of both shadows indicate the highest and lowest values, just as in bars. However, the bullishness or bearishness of every candle will define its position. This way bullish candles have the closing price at the top, and bearish — at the bottom. Depending on your MT4 settings the candlesticks can be red and green or black and white. You also have an option to change it to any other color pair, just keep in mind that most signal reports and screenshots will stick to more traditional design.
Forex Charts in Technical Analysis
While traders might argue which are the most easy to read Forex charts, the way these charts are used remains more or less the same. You start by learning to find a trend, by following simple logic: uptrend is a series of somewhat consecutive higher highs, interrupted by insignificant lows and the downtrend is a set lower lows. Trends may vary in how long they last and how much they contribute to the overall price movements. Very often what you might consider a minor trend is actually a swing in price, and it doesn’t always correspond with the overall situation.
After you master to read trends on charts, zoom in to the specific formations of bars and candles. Certain arrangements of chart elements are called patterns, and they are generally used to predict the upcoming move of the price. Keep discovering new patterns and building successful strategies based on them. It won’t be long before you will be able to tell a whole story about the market from just one glance at the chart.