Introduction to Forex Charts

The principal tool used by the Forex technical analyst is the Forex chart.

Forex charts are used to study historical price action of the markets. This information is then interpreted and used to help the trader to identify the most likely future movements of a currency pair.

While all Forex charts show the same historical price information there are variances in the way that they display this information. The most widely used types are the Line chart, the Bar chart and the Candlestick chart. When Forex charting, the exact type you settle on will largely be down to your personal preference.

Each of the Forex Charts will display the market price as an increment for the timeframe selected. So for example if you set your chart to daily, then each element on the chart will show you where the market moved over a twenty four hour period. If you select a four hour chart then each candle or bar will represent 4 hours of price action and so on.

Charts will usually allow you to display data over a range of commonly used timeframe's, notably: 1 minute, 5 minutes,15 minutes, 30 minutes, 60 minutes, 240 minutes, Daily, Weekly and Monthly.

Below we give examples and a summary of each Forex chart type.

Line Chart

The Line Chart shown above is the most basic of the three Forex chart types. It displays data by simply connecting a series of data points such as the closing price.

Line charts give a good general overview of currency pair trends which we cover in the next lesson.

The basic construction of the line chart does not give any open or closing price information or any indication of the price movement during the course of the trading timeframe.

Bar Chart

The Bar Chart provides you with more information than the simple line chart. As you can see from the example above, visually you can make out the 'up' and 'down' days in the market by the colour of the daily bar.

Importantly it is also possible to see where the market opened and closed for the day. Let’s take a look at an expanded view of the Bar Chart to examine it more closely.

In the example above we have zoomed in on a Daily Bar Chart for the EUR/USD. Here you can clearly see the open and close of the bar. This shows both the opening and closing price of the market, in addition to the high and low price that the market reached during the time frame selected..

Candlestick chart

Candlestick charts are possibly the most popular of all Forex charts used in current technical analysis. This offer an instant visual 'picture' of the market price action in way that is most readily visually interpreted.

Candlestick charts are so called because they make use of 'candles' to display price information. Normally these candles are displayed in different colors, depending as to whether the most recent market price is above or below the opening or closing price

In the chart above, when the market finished above the opening price, the candle is blue. On days when the market finished lower than the opening price,

A further benefit of using Candlestick charts is that they help to show the interrelationship between buyers and sellers in the market. This provides an easy reference for understanding the most recent price action in the market.

Each candle is constructed of a 'body' and a 'wick'. The top and bottom of the wick show the highest and lowest price that the market traded during the selected time frame. In contrast the body of the candle shows the the distance between the opening and closing price of the market.

In the chart above we can see that the blue bullish candle closes higher than it opens. The top of the candle’s body is where price closed and the bottom of the body is where the price opened. For the red bearish candle the top of the body is where the price opened and the bottom of the body is where it closed.

Next: Forex Trends