3 Types of Charts in Forex Technical Analysis

As we advance in our Forex trading course, things get uglier but juicier. In the previous lesson we explained the three types of analysis: fundamental, technical, and sentiment analysis. We learned that success in Forex trading depends on how well you integrate each of these types of analysis in your Forex trading strategy. In this lesson, we will learn how to use one of the key elements of technical analysis in Forex trading – reading the charts.

Perhaps you have seen some zigzag lines on Forex trading platforms. They are not incidental, neither are they aesthetic. Each graph has a meaning, and learning to interpret such meanings is essential in your technical analysis in Forex trading. There are basically three types of charts in technical analysis: line chart, bar chart, and candlestick.

Line Chart

A line chart is the simplest visual presentation of the performance of currency pairs in Forex trading.

It contains lines that join the opening and closing prices of a currency pair. When connected together, these lines form a line chart that depicts the general trend of prices for the currency pair. In the example below, the opening price is A, and the closing price is B. Then the opening price for the second session is C, and the closing price is D. When the sessions are joined together from A-Z they form the line chart.

Bar Chart

A bar chart is a little more complex than the line chart. It is like that nagging girlfriend of yours, or you, when pregnant. Sometimes she likes chocolate, sometimes pizza, sometimes burger, sometimes chicken… But in the end you can always connect the dots.

In Forex trading, you connect opening and closing prices as well as high and low prices using bars. Let us use the example of the pair EUR/USD with fluctuating moods like your pregnant girlfriend. When the moods are high, the price will be at point A of the vertical bar as shown in the figure and the low point will be at point B. The opening position of this swing can be at point C of the horizontal bar, while the closing point can be point D.

The vertical bar represents the trading range of the currency pair, while the horizontal bars on the left and right side represent opening and closing prices respectively. Let us put this into a clearer perspective with a real chart in one of the brokers.

Do you see the vertical and horizontal bars interconnected to each other? They form a bar chart indicating price movements of EUR/USD for a specific period of time – an hour, a day, a week, a month, etc. Based on the shape of the above bar chart, would you buy or sell EUR/USD?

Candlestick Charts

This type of chart is similar in many aspects to the bar chart. However, as you will see, the candlestick, like its name, is very gorgeous. Its graphic format makes the graph more appealing and easy to read compared to the other types of charts.

High and low points of a candlestick are represented by vertical bars just like the bar chart. However, candlestick charts have large blocks in the middle that connect the opening and closing prices. If this middle block is colored or filled, then the closing price is lower than the opening price. On the other hand, if the body is hollow, it means that the closing price is higher than the opening price.

Aghast! Aaaarrrggghhh!!! Do I have to know all these things before I begin trading? You ask. Well, you do not have to. You can jump directly into the river to test the depth of the water; but be sure to be swept away together with your investment.

Do you see the filled and unfilled blocks? The filled ones are somehow white, and they show that the closing price is less than the opening price. On the other hand, the black blocks are hollow, and they show that the closing prices are higher than the opening price. They do not have to be black or white, it depends on the platform you are using.

This one of mine has a filled white block when the price is going down. This is called a bearish market where you have to sell the pair.

The graph also has a black block like the background when the price is going up. This is bullish trend where you buy the currency pair.

You can customize and change the background to become white, and the bullish hollow candlestick will look white.  Look at how I am customizing my AUD/USD chart:

What you is just right click on the chart and you select “Properties” at the bottom. You can then change the graphics whichever way you want.

So don’t worry about the color, that depends on how you customize your trading platform. Just know that the bearish candlestick goes down and closes below the opening price; while a bullish candlestick goes up and closes above the opening price.

Doesn’t that sound better? Now, does this graph make your decision to buy or sell EUR/USD clearer? Will you change your decision after looking at the candlestick rather than the Bar Chart?

Conclusion

This lesson has introduced you to types of charts so that you do not become confused when you see them on your trading platform. You know that bars and blocks are used to represent the range of opening and closing prices of currency pair. Connecting these bars to each other gives a trend or price movements that will help you analyze the future prices of your currency pair so that you can decide to buy or sell.

Phew!!!!

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