A price chart is a graphical display of price over a fixed period of time. This is the primary starting point for technical analysis and these charts used by traders or see a market trend or analyze a trading opportunity. There are three major types of charts in Forex trading – line charts, bar charts and candlestick charts and here we will look at each different type.
Line charts are not commonly used among forex traders as they do not provide a wide range of information. Line charts are essentially a series of dots representing the closing price, which are connected by a line. This means that the line joins one closing price to the next, showing a general trend in the price movement of a currency pair over a set period of time. These types of charts tend to be very basic, as they do not provide any additional information, although there are some more advanced line charts available for price action.
As the name suggests, bar charts are made up of a series of vertical bars. Bar charts are also known as OHCL charts, standing for Open, High, Close, Low as they indicate the opening price, the closing price and the high and low for the period the bar covers. The top point of the bar represents the highest price reached and the lowest point on the bar shows the lowest point that it reached. In other words, the bar represents the currency pair’s trading range. On the left of the bar is a dash that represents the price the bar opened at and the dash on the right shows the price the bar closed at. The bar represents a period of time and before you use these charts it is important to understand what period of time the bar is representing – an hour, a day or a week. While these types of charts provide much more information that line charts, many traders find them difficult to use from a visual point of view.
Candlestick charts are gaining popularity in the West. In fact, they have been used by traders in Japan for a long time to indicate the changes in the price of rice. These types of charts have now been modified by forex traders. They are similar to bar charts as they contain the same information, but are easier to look at. The candlestick chart uses a closed bar with the open and close indicated by the top and bottom of the bar so that the bar represents the trading range between the opening and closing prices of the currency pair. There are two different coloured bars, representing whether the candle moved up or down from open. Traditionally, the coloured in bars indicate that the currency pair closed lower than it opened. The top point of the line above the bar represents the highest price reached and the bottom point of the line below the bar represents the lowest point reached.