3 Most Common Forex Chart Types

Getting familiar with charts is an important step to take if you wish to become a successful forex trader. Novice traders and beginners alike will probably feel a bit overwhelmed by all the options and settings but you must understand that a price chart is the most basic and the most important part of the technical analysis.

Charts show a single period of time and such period could range from one minute to one month to several years. It also illustrates and represents the price history of a currency. When looking at charts, it is essential that you learn to look at multiple time frames. By doing so, you have the ability to look at the same data displayed in different units of time.

There are several kinds of price charts in forex. Most traders agree that candlestick charts are the easiest to read while some “old timers” who have traded on bar charts for years feel that bar charts are easier to read because that is what they are accustomed to.

Let’s take a look at the three most popular types of charts:

Bar Chart

Bar charts display the price in the form of bars. Each bar represents a unit of time. For instance, if you’re looking at the five minute time frame, each bar would represent five minutes of time. And time is going from left to right on your chart.

Just like candlesticks, bar chart shows the open, close, high and low price.

The idea of changing the colors of bars is borrowed from candlestick charts that make them a little bit easier to read than if they were all black and white or one color.

Line Chart

Price changes are shown using a line in a line chart. The Y-axis represents time whereas the X-Axis displays the price. Unlike candlesticks and bar charts, a line chart does not give additional information such as high, low, and opening price. It only provides the closing price over a period of time.

However, the line chart is really simple which makes it very easy to understand.

Candlestick Chart

In 1989, Steve Nison introduced candlesticks to North America when he wrote an article in the magazine Technical Analysis of Stocks & Commodities. Japanese Candlesticks were invented by a Japanese rice trader, Sakata way back in the 17th century.

A candlestick chart is a little bit different than a bar chart although both charts contain the same information: Opening Price, Closing Price, High Price & Low Price, over a given time interval.

A bear candle, usually red in color, shows you that the opening price is the top of the body of the candle and the close is the bottom of the body of the candle. Wicks extending above and below the body of the candle represent the high price and the low price, respectively.

By observing the highs and lows on a chart, you are now stepping towards mastering the art and science of trading successfully until you have become familiar with all the common formations, patterns and their meanings.

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