How To Understand FOREX Charts

There are three of the most popular forex charts, and they are used in other markets as well, even for stocks.  Here they are: 

  • Candlestick chart

  • Bar chart

  • Line chart

 

Let’s explain each chart so you can understand them better.

 

Line Charts:

 

Example of a line chart for AUD/USD


The line chart is very simple, it draws a line from one closing price to another.  Sounds pretty simple, doesn’t it?  Sure.  When the prices are strung together, we see the general currency pair and how it moves over time.

 

Bar Chart:

Above is the example of a bar chart for AUD/USD

 

A bar chart is a little different.  Here’s why – it actually gives you a little more information, by providing the opening and closing prices, as well as the highs and lows.  For those who want more information about price movement, or want more information short-term, this could be preferable.

The bottom bar is the lowest price, and the top bar is the highest price, and the vertical bar is important because it literally shows the RANGE at which the currency traded.  Therefore, if the bar is tall, you could see immediately that the price range was particularly volatile in that period of time.

The horizontal hash on the left side of the bar is the opening price, and, it is probably self-explanatory: the right-side hash is the closing price.

Just a note, you may see the term “bar” used later, and this is what we would be referring to.  

 

A “bar” could refer to different amounts of time, depending on the chart that you are pulling up, and what timeframe you are looking at.  It might be one hour, one day, or one week.  It’s always important to remember the amount of time you are looking at, so you are never confused.  This will help you keep everything in perspective, whether the chart is short-term or long-term.

 

These bar charts are also often called OHLC charts.  There’s a clever acronym to remember this: the Open, the High, the Low, the Close.  This particular chart gives a lot of information, and so there are many traders who really do prefer OHLC charts because of this reason.

 

Once again, so you don’t forget:

 

OHLC:

 

O – The little horizontal line on the left is the Forex opening price.
H – The top of the vertical line demonstrates the highest price of the particular time segment.
L – The low of the vertical line means the lowest price of the particular time segment.
C – The horizontal line on the right, is the Forex closing price.

 

Candlestick Charts:

 

Here’s an example of a BW colored candlestick chart for AUD/USD.  Doesn’t it just draw you in?

 

Candlestick charts provide the same information as a bar chart, but it is presented differently.  Some people would call candlestick charts “prettier”, and for those who like a certain kind of aesthetic, it might be the best option.

 

Now, just like television or movies – there are black and white candlestick charts.  Some traders might prefer that, but ultimately, wouldn’t you want a little color in your life?  It’s all about your particular attitude.  Maybe, when you are trading, you don’t want to be distracted, and prefer a formal and serious attitude when it comes to trading, and for whatever reason, a black-and-white chart helps you get in the zone.

 

 

Ultimately, there are some beautiful red and green candlestick charts that don’t just look amazing, but also give you all of the relevant information that you need to trade whatever time segment you are planning on trade.  The red and green candles can honestly convey information much faster, and we will explain that later, so this could be important.

 

This could be a great visual aid, and might end up being the one that you use – but either way, it’s all about preference, and whatever you are comfortable with when it comes to trading.

 

Here are the advantages of a candlestick chart:


Candlestick charts are a good place to start for beginners, and also give great information for the more experienced trader, as well.
It could be a lot more easier on the eyes.  You might not think about it, but subconsciously, you don’t want to get bored looking at charts, because it could end up getting you discouraged.


There are interesting candlestick patterns to keep you engaged, and can also tell you even MORE information, so that’s a whole new reason to consider using these particular charts.

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