What are Forex Charts?



What are Forex Charts?

Forex charts are an important technical tool used by traders to analyze the price actions of the currency prices. It is also used to assist them to determine when is the best time to buy and sell currencies.

Forex charts usually come in a package or software and this charting software allows traders to view past currency exchange rates. It is provided by a forex broker free of charge when a trader opens an account with them. Each forex charting software differs from one broker to another.

Below are the three most popular and basic types of forex charts:

Figure 1: Line Chart

Figure 1: Line Chart

  • Line chart
  • Bar chart
  • Candlestick chart

Line Charts

A line chart is a type of chart created by joining a line from one closing price to another. When the lines are all drawn together, you can see the price actions of a currency pair over a certain period of time. Figure 1 shows a sample of a line chart for GBP/USD.

Bar Charts

A bar chart is a type of chart that shows the highest and lowest price a currency pair is traded for the day including the opening price and the closing price.

The top of the vertical bar indicates the highest price traded during that period of time and the bottom of the bar indicates the lowest price. The horizontal bar on the right side attached to the vertical bar represents the closing price and the left side horizontal bar is the opening price. Figure 2 shows a sample of a bar chart for GBP/USD.

Figure 2: Bar Chart

Figure 2: Bar Chart

You have to note that a bar can also be referred as a specific set of data such as one bar to represent the set of quotes for one hour if a trader is to work with an hourly data. For a one day bar then it will represents the price data for one day.

There is an another name for a bar chart and it called is the ‘OHLC’ chart. The ‘O’ is for Open, ‘H’ for High, ‘L’ for Low and ‘C’ for Close.

Open: The short horizontal line on the left is the opening price
High: The top of the vertical line signifies the highest price
Low: The bottom of the vertical line signifies the lowest price
Close: The short horizontal line on the right is the closing price

Candlestick Chart

A candlestick chart is the same as the bar chart. Both have the same price information in their structure or body which is the opening price, the highest price, the lowest price and the closing price. Both the highest and the lowest prices are also located at the top and the bottom point.

The main body of a candlestick bar is rectangular in shape and vertically positioned with two vertical lines attached to it, one at the upper side and the other at the lower side. Both vertical lines are known as shadows. The opening and closing price are slightly different from the bar in a way that the body of candlestick is filled in different colors depending on the directions of the currency price.

Figure 3: Candlestick Chart

Figure 3: Candlestick Chart

For illustration, if a red colored body or rectangle is to represent the price of a certain currency closes low during that period of time, then top side of this rectangle will be the opening price and the bottom side will be the closing price. For the currency to close high, the opening price will be at the bottom side of the rectangle and the closing price will be at the top side and it is represented by a green colored rectangle. See figure 3 for a sample of the candlestick chart.

Although the candlestick chart and the bar chart display the same information, most traders prefer to use the candlestick charts for their trading. Its advantages are:

  • Candlesticks are easier to use and understand especially for beginners.
  • Candlesticks are good at identifying trend reversals.
  • With candlesticks, certain candlesticks pattern such as hammers, morning stars, etc can easily be identified and remembered.