On this occasion we will study the three types of charts that are most used in Forex:
- Line charts
- Bar graphs
- Japanese Candlestick Graphics
The line chart traces a line from the closing price to the next closing price. When these prices join with a line we can see the general movement of a currency over a period of time.
This is an example of a line chart for the EUR/USD:
A bar chart also shows closing prices, while at the same time it shows opening prices as well as highs and lows.
The bottom of the vertical bar indicates the lowest price for that period of time, while the top of the bar indicates the highest price, so the vertical bar generally indicates the price range of the currency pair.
The horizontal bar marks the opening price on the left side and the closing price on the right side.
This is an example of a EUR/USD bar chart:
Note: As you progress through our course you will see a lot of the word “bar” to refer to a specific section of the graph.
The bar is simply a time segment, be it 1 day, a week or an hour.
Bar charts are also known as “OHLC” for Open, High, Low, Close, i.e. the opening price, the highest, the lowest and the closing of a currency pair.
Opening Price: The small horizontal line on the left is the opening price.
Maximum: The top of the vertical line defines the highest price in that time period.
Minimum: The bottom vertical line defines the lowest price in that time period.
Closing Price: The small horizontal line to the right is the closing price.
Japanese Candles Chart
Among the different types of Forex charts, Japanese candles are widely used.
Candlestick charts display the same information as bar charts but in a more visual and eye-catching format.
Candlestick charts indicate the price range from the highest point to the lowest point with a vertical line. However, on a candlestick chart, the large middle block (candle body) indicates the range between the opening and closing prices. Traditionally, if the body is filled or colored, the currency closed at a lower price than it opened.
In the following example the body is in black. The top of our candle bodies in color indicates the opening price and the bottom, the closing price. If the closing price is higher than the opening price, the body of the candle in that case would be white or empty. (Depending on the configuration of the trading platform you can also find for example green bodies for bullish candles and red bodies for bass candles,…).
The purpose of candlestick charts is to provide a visual aid, as it contains the same information as a bar chart. The advantages of the Japanese candlestick chart are:
- Easy interpretation, ideal for beginners who start their chart analysis
- Easy to use
- Easy to remember
- Good for identifying key points where prices can be returned.