There are different types of forex charts which can help make the reader the understand the supply and demand in the market. The historical price action can easily make the user spot the supply rich and demand prone zones.
Reading A Forex Chart
Now, it is time to get into the actual charts and learn how to read them. A forex chart shows a graphical illustration of the exchange rate between two currencies. You can see both the real-time data and the past history.
There are three types of charts: line charts, bar charts and candlestick charts. Candlestick charts are the most popular. But it is useful to know how to read all the three types of charts.
Each chart can be viewed in different time frames. In your trading platform, you will see the options to switch between various time frames like 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, 1 day, 1 week and 1 month.
Types of Forex Charts
Although there are several types of forex charts, only three are used in common- Line charts, Candlestick charts and Bar charts.
This chart is the simplest chart and doesn’t give much detail. A line chart just has a line drawn from one closing price to the next closing price. So, all you see in a line chart is a series of closing prices.
Even though they are not popular, sometimes traders use these charts if they want to have a quick look at the least amount of data without all the cluttering information.
Here is how a line chart looks like:
A bar chart reveals slightly more information than the line chart. You see both closing and opening prices in a bar chart. So, if you look at a 1-hour chart, each bar represents 1 hour. A bar in a 1-hour bar chart shows the price it opened within that hour and the closing price of that hour. In addition to that, it also shows the highest and the lowest prices of that hour.
In a one hour chart, The top of a bar shows the highest price of the hour and the bottom of the bar shows the lowest price. The little horizontal hash on the left side shows the opening price of the hour and the horizontal hash on the right side of the bar shows the closing price of the hour.
You can apply the same for the other time frames. Since each bar shows the open, close, high and low prices of a currency, the bar charts are also known as OHLC charts.
Here is how a bar chart looks:
This is the most popular and widely used type among all the three types of Forex charts. Both bar charts and candlestick charts reveal the same information: open, close, high and low prices for a particular time period of a specific currency. But in the candlestick charts, the space between the two horizontal hashes are replaced with a graphic that looks like the body of a candle. So, the chart looks more attractive and easy to read.
The area between the open and the close prices of a time period is known as the body. The projections outside the body of the candle at the top and at the bottom are called ‘shadows’.
With default settings, a candle may be either filled with a white color or unfilled and hollow.
A filled candle, just means that that the opening price is higher than the closing price. In other words, the price has come down in that specific time period. This is also known as a bearish candle. A downward movement in the Forex is also known as a bearish move.
A hollow, unfilled candle means that the closing price is higher than the opening price. In other words, the price has gone up in that specific period. This is also known as the bullish candle. An upward movement in the Forex is known as a bullish move.
You can change the default settings to make the charts look a little bit better. It is a common practice to change the color of the filled candles to red and the color of the hollow candles to green.
Here is how a candlestick chart looks like with the default hollow and filled candles:
And here is the chart with red and green candles:
It is very helpful to use candlestick charts, especially with red and green candles. They give you a quick picture of the trend and are very easy to interpret. Also, certain type of candlesticks has names like ‘Doji’, ‘Shooting star’ etc., which may indicate some specific changes in the market.