Forex charts - Types of charts

Line Chart

A typical line chart shows a series of straight lines which connect neighboring closing prices of a currency. You can see a general price movement of a currency pair over a period of time. The chart below is a daily line chart of EUR/USD between June 21 and Oct 31, 2010. Every trading day, a new closing price is taken and connected to previous day's closing price with a straight line.

Bar Chart

Bar charts are more complicated than line charts, but they provide much more information too. A typical bar chart shows opening and closing prices, as well as high and low prices of a period. This is also why bar charts are referred as OLHC charts (open, low, high and close). Note that a period's opening price does not always equal to previous period’s closing price. And a period's closing price can be higher or lower than, or equal to a period's opening price.

Below chart shows EUR/USD price movement during the same period but in bar chart. One can clearly see that there is more information here than in the line chart.

Candlestick Chart

This is a combination of bar chart and line chart to describe price movement of a currency. It is developed by Japanese rice trade Homma Munehisa in the 18th century. This chart was adopted by stock traders in early 20th century and since then has been very popular for its level of ease in reading and understanding, with multiple price information.

Basic candlestick chart shows the same information as bar chart but in a better visual format. Other color variations include white/black and green/red. The same EUR/USD period in candlestick chart is much more readable than bar chart.

Individual candlesticks fall into one of the 15 formats in the figure below. Names of candlesticks (e.g. #14 hammer and #15 hanging man) are most likely translation of Japanese names. One can rarely use a candlestick alone to determine market sentiment. Candlestick traders search for specific patterns of candlesticks to predict future price movements.

The names of these patterns tend to reflect market sentiment. For example, the "shooting star" pattern below is a bearish reversal pattern, meaning market trend must be bullish leading into the bearish reversal formation.

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