Types
of Forex Charts
Let’s take a look at
the three most popular types of charts:
1.
Line chart
2.
Bar chart
3.
Candlestick chart
Line Charts
A simple line chart
draws a line from one closing price to the next closing price. When strung
together with a line,
we can see the general price movement of a currency pair over a period of
time.
Here is an example of
a line chart for EUR/USD:
Bar Charts
A bar chart also
shows closing prices, while simultaneously showing opening prices, as well as
the highs and lows.
The bottom of the vertical bar indicates the lowest traded price for that time
period, while the top
of the bar indicates the highest price paid. So, the vertical bar indicates the
currency pair’s
trading range as a whole. The horizontal hash on the left side of the bar is
the
opening price, and
the right-side horizontal hash is the closing price.
Here is an example of
a bar chart for EUR/USD:
NOTE:
Throughout our lessons, you will see the word “bar” in reference
to a single piece of
data on a chart. A
bar is simply one segment of time, whether it is one day, one week, or one
hour. When you see
the word ‘bar’ going forward, be sure to understand what time frame it is
referencing.
Bar charts are also
called “OHLC” charts, because they indicate the Open, the High,
the Low,
and the Close
for that particular currency. Here’s an
example of a price
bar:
Open:
The little horizontal line on the left is the
opening price
High:
The top of the vertical line defines the highest 
price of the time
period
Low:
The bottom of the vertical line defines the lowest
price of the time
period
Close:
The little horizontal line on the right is the
closing price
Candlestick Charts
Candlestick
charts show the same information as a bar chart, but in a prettier,
graphic format.
Candlestick bars
still indicate the high-to-low range with a vertical line. However, in
candlestick
charting, the larger
block in the middle indicates the range between the opening and closing
prices.
Traditionally, if the block in the middle is filled or colored in, then the
currency closed
lower than it opened.
In the following
example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the
block
is the opening price,
and the bottom of the block is the closing price. If the closing price is
higher
than the opening
price, then the block in the middle will be “white” or hollow or unfilled.
We don’t like to use
the traditional black and white candlesticks. We feel it’s easier to look at a
chart that’s colored.
A color television is much better than a black and white television, so why
not in candlestick
charts?
We simply substituted
green instead of white, and red instead of black. This means that if the
price closed higher
than it opened, the candlestick would be green. If the price closed lower than
it opened, the
candlestick would be red. In our later lessons, you will see how using green
and
red candles will
allow you to “see” things on the charts much faster, such as uptrend/downtrends
and possible reversal
points.
For now, just
remember that we use red and green candlesticks instead of black and white and
we will be using
these colors from now on.
Check out these
candlesticks…
Here is an example of
a candlestick chart for EUR/USD. Isn’t it pretty?
The purpose of
candlestick charting is strictly to serve as a visual aid, since the exact same
information appears
on an OHLC bar chart. The advantages of candlestick charting are:
Candlesticks
are easy to interpret, and are a good place for a beginner to start figuring
out chart
analysis.
Candlesticks
are easy to use. Your eyes adapt almost immediately to the information in the
bar
notation.
Candlesticks
and candlestick patterns have cool names such as the shooting star, which helps
you
to remember what the pattern means.
Candlesticks
are good at identifying marketing turning points – reversals from an uptrend to
a
downtrend or a downtrend to
an uptrend. You will learn more about this later.
Euro Exchange Rate
