Let’s look below at the three most popular forex charts and teach you how to read them.
A line chart simply draws a line from one closing price to the next closing price. This allows us to see the general price movement of a currency pair over a period of time.
Bar charts tend to be a little more intricate. They show the opening and closing prices, as well as the highs and lows. The lowest traded price for that time period is located at the bottom of the bar, and the highest traded price for that time period is located at the top of the bar.
The trading range of the currency pair as a whole is indicated by the vertical bar itself. The opening price is represented by the horizontal hash on the left side of the bar. The closing price is shown on the right-side horizontal hash.
A bar represents one segment of time. It could be a day, a week, or even an hour. Sometimes bar charts are also known as “OHLC” charts because they show the open, high, low, and close of a currency pair.
Open - The opening price is shown by the tiny horizontal line on the left.
High - The highest price of the time period is shown by the top of the vertical line.
Low - The lowest price of the time period is shown by the bottom of the vertical line.
Close - The closing price is shown by the tiny horizontal line on the right.
The same information that is shown in a bar chart is also shown in a candlestick chart. However, the price information is displayed in a more graphic way.
The vertical line bars in a candlestick chart still represent the high-to-low range. However, the larger block (the body) in the middle shows the range between the opening and closing prices. If the block in the middle is colored in or filled, then it shows that the currency pair closed lower than it had opened.
‘Unfilled’ blocks are colored in black. The opening price is shown at the top of the block and the closing price is shown at the bottom of the block. The block in the middle will be ‘white’ or filled if the closing price is lower than the opening price.
It may be easier to see upward or downward trends when using different coloured candlesticks, traders often choose colours that make the most sense for them. Possible reversal points are also clearly shown.
There are many advantages to using candlestick charts. It is very important to be able to read them.