The Different Types of Forex Charts and Their Importance
Forex charts are an essential part of successful currency trading. Whether a trader is a novice or a seasoned trader, it is imperative to start reading and understanding these charts to ensure profitable trades. Having said that, here are the top three chart types for currency trading and their predictions.
Bar charts are very simple but surprisingly simple to operate. The variables they represent include the start, end, low, and high of currency trade. In some cases, they are also called OHLC. A bar chart is a typical chart with the familiar X and Y axes. Vertical lines represent the currency’s highs and lows for a specific period. The horizontal lines represent the opening and closing prices of the currency.
k line chart
Candlestick charts are actually a more complex variation of bar charts. Although candlesticks usually show more data, both track the same variables in forex trading. This is why more Forex traders seem to prefer the candlestick method. The name itself derives from the fact that the chart looks like candlesticks. The subject is usually given a specific color to describe the rise or fall in price over a specific time period. The lines at the top and bottom represent other variables of the chart. The wick, or wick at the top, is the highest price reached by the currency pair and the lowest price at the tail. Colors can be black or white, green or red. Green is often used to indicate rising prices, while red is used to indicate falling prices.
Line charts are probably the simplest of all Forex charts in use today. It requires only two variables – the passage of time and the closing price of the currency during that period. It usually tracks only one currency pair at a time but can be configured to watch several types of currencies simultaneously. When the dots are strung together, this can indicate the movement of the currency in day-to-day trading.
These aren’t the only forex charts available today, but they are definitely the most used. Often, it is easy for brokers to offer charting services for their clients to use. Note, however, that the accuracy and timeliness of the data often depend on the reputation of the cartographic provider.
Why is it important?
These charts are concrete representations of past foreign exchange market movements. By providing a summary history of how the system works, traders will be able to make fairly accurate predictions about trends. This allows them to position their trades in anticipation of monetary profits.
Note that understanding the different variables associated with forex charts is only one step in the process. Traders also need to start understanding the different patterns in the Forex market that can be easily spotted through charts. By identifying and spotting these patterns, traders can reduce risk and increase profit margins.
Three must-have forex charting tools
- If we are talking about the main purpose of forex charts, these charts are usually used to describe changes in currency prices over time. Therefore, in Forex trading, you will notice that currency prices are constantly changing over time.
- For a smooth and hassle-free experience in Forex trading, it can be helpful to consider using Forex charts. There are many types of Forex charts, and each type has its function in trading activities. Here we have a quick discussion of the different types of Forex charts and their main uses
There are three common types of Forex charts, namely:
- line graph
- bar chart
- Candlestick Chart
Let’s discuss each of them in detail below
1. Line chart
First, we have line charts that are used to highlight key characteristics of any investment. Additionally, these charts are used to show the price of any investment over time.
Line charts have become very common for many companies to investigate their forex growth over time.
Line charts also have a trend line that depicts economic assets. This trend line usually explains certain areas, which are part of the chart. For example, when these areas are combined with more technical indicators to show a particular trade outcome, a trend line is drawn.
2. Bar Chart
The use of bar charts is common in financial analysis. These charts are widely used to predict future market trends in any forex.
Simply put, a bar chart is a visual representation of any real-time currency price and its movement from one currency to another. Therefore, traders usually use bar charts for short-term or day trading.
Additionally, bar charts also play a vital role in displaying short-term and long-term market trend data. Therefore, for a better trading strategy, traders can also play various bar charts.
3. Candlestick Chart
Third, we have candlestick charts! The use of candlestick patterns is common in currency trading technical analysis. The use of candlestick charts has been popular enough to predict market behavior over many centuries.
Using candlestick patterns in Forex trading is very effective and reliable, especially for new traders. Furthermore, it enables traders to start trading with little information and a low-risk environment.
- We strongly recommend using the candlestick chart for comparison with the remaining two charts for a number of reasons. First, candlestick charts are easy to understand and read. Second, they can even get a very clear view of price/currency behavior and predict market trends.
- In addition to the above three Forex charts, various other charts are provided, which are helpful in trading at certain stages. But for us, these three are the most common and effectively execute successful trades.
- You should consult some advanced traders to see what trading charts they use and why not others. Then, do some research on each trading chart, understand its pros and cons, and choose the one that suits your trading needs. I wish you all the best!