Forex charts are a useful tool for analyzing historical price movements, as well as tracking potential entry and exit points. With an appropriate forex chart, you can analyze the historical price movements and spot the potential trends and patterns that can lead you toward making profitable trades.
Understanding Basic of a Forex Chart
A Forex chart is simply a graphical representation of price action. Price action is the movement of price over time, and a chart is a graphical representation of this price action.
There are many different types of charts, but the most popular among Forex traders is the candlestick chart. Candlestick charts provide a clear and concise way to view price action and have become the standard among professional traders.
The candlestick chart is composed of a series of candlesticks, each of which represents a specific period of time. The length of each candlestick depends on the time frame that is being used. For example, a one-minute candlestick would represent one minute of price action. The candlestick chart is divided into two main parts: the body and the wicks. The body of the candlestick is the section between the open and close price, while the wicks are the lines extending from the body to the top and bottom of the candlestick.
The open and close price are the most important price levels on the candlestick chart. The open price is the price at which the candlestick opened, while the close price is the price at which the candlestick closed.
The high and low price are the other two important price levels on the candlestick chart. The high price is the highest price reached during the time frame that the candlestick represents, while the low price is the lowest price reached during the time frame.
Three Different Types of Forex Charts
If you want to get started in forex trading, you need to understand the different types of forex charts that are available. There are three main types of charts that are commonly used by traders: line charts, bar charts, and candlestick charts.
Line Charts
Line charts are the simplest type of chart and only plot the closing price of a currency pair over a given time period. This makes them easy to interpret and can be a good starting point for new traders. However, because they only plot the closing price, they don’t provide a lot of detail about the intra-day price action.
Bar Charts
Bar charts are a step up from line charts and provide more information about the price action. Each bar on a bar chart represents the high, low, open, and close price for a given time period. Bar charts are useful for day traders who need to know more about the intra-day price action.
Candlestick Charts
Candlestick charts are the most popular type of chart among forex traders. They provide all the same information as bar charts, but they also include the “body” of the candlestick, which represents the open and close price. The body of the candlestick can be either red or green, which makes them easy to interpret at a glance.
Each candlestick on a candlestick chart represents the price action over a certain period of time. The body of the candlestick represents the open and close prices, and the wicks represent the high and low prices.
Key Takeaway
A Forex chart is a visual representation of currency pairs and their trading activity over time. By understanding how to read a Forex chart, traders can gain valuable insights into the market and make better informed decisions about their trades.
Now that you know the different types of forex charts and know the basics, you can start to understand how to read them.