Introduction to Forex Trading Charts

Forex trading charts to a rookie may seem like rocket science at first, pretty intimidating! There are colours flashing everywhere, things going up and down, lines and metrics, and somehow the experienced trader seems to know what they are all about. You do not need to know how to use all the different charts and tools, but you will learn what they do in time.There are different forex trading charts but the 3 common chart types are:

1. Line Charts
2. Bar Charts and
3. Candlestick Charts or Japanese Candlesticks

All these forex trading charts are drawn or tracked in terms of periods. The periods are either 1 minute, 5 minutes, 1 hour , 1 day, 1 month or whatever period a trader feels like tracking. So when we say a trader is looking at 5 minute charts, we mean that he is looking at how the prices have moved over 5 minute periods.

The price movement is tracked or recorded in the charts using the following:

1. Open Price - This is the price at which the forex currency was traded at the start of a particular period.

2. High Price - This indicates the highest price that the currency reached at a particular period.

3. Low Price - Shows the lowest price that the currency was traded at a particular period we are looking at.

4. Close Price - This is the price that the currency was traded at the end of the period we are tracking.

You will normally see in forex trading charts the above written as OHLC or Open High Low Close.

Before we get confused let us learn by examples. Please note that I shall give the example first then show a live chart with the same currency and the same time period so that you can see the difference.

1. Line Charts

Line charts are the simplest charts to read. They only show one thing, the Close Price of a particular currency at a particular price. In the example below we see a 1 hour GBP/USD line chart. After every 1 hour the close price is noted on a graph. The points are then strung together to produce the line that we see in the chart below.

2. Bar Charts

Bar charts are more detailed as in addition to the Closing prices, they also show the Open Prices, the High Prices and the Low Prices of the currency being traded at a particular time period. I would advise that one learns how to read bar charts as they are probably the most used charts by forex traders. The OHLC format was specifically created for bar charts.

Bullish bar charts indicate that the price has gone up during the previous period. This is indicated where the Close Price is higher than the Open Price. Bearish bar charts indicate that the price has gone down during the previous period. This is indicated where the Close price is lower than the Open price.

It’s easy, isn’t it? Look at the example below for what a bar chart looks like.

3. Japanese Candlesticks

This candlestick chart is the default choice for many beginners to advanced traders. The main reason is because it is both user-friendly and very easy to understand.

Whole books have been written about interpreting Japanese Candlesticks. I prefer just finding out if the price has gone up or down and where the market is heading to (known as Market Trend).

Starting with the body of the candlestick, if the body is red (or in other cases black); it signals that the Open prices were higher than the Close prices. This is also called a bearish candlestick. If the Open prices at a particular time were lower than the Close prices, then the particular candlestick is higher or in other words, a bullish candlestick. It is normally green or in other charts white.

The best way to understand how to use forex trading charts is through practice. They are actually simpler to use than would seem at the very beginning of a your trading journey. The practice of learning how to identify trends in a market relies heavily on how you interpret the above charts.

Top of: Forex Trading Charts Page

Back to: Forex Charts Page

Back to: Forex Trading Domain Homepage