Types of Forex Charts
What is a forex chart? What are the types of Forex charts? What are the advantages and disadvantages of bars, linear and candlestick charts?
Good afternoon, gentlemen, traders! With the development of the Internet, anyone can become a Forex trader. All that is required of him is to be able to interpret the price on the Forex chart in the trading terminal in accordance with his knowledge and trading strategy. There are three types of charts in MetaTrader 4 and most other trading platforms. You may wonder which type of chart is best for your trading style. Today we look at what Forex price charts are and help you make the right choice.
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The main types of Forex charts
The trading terminal presents three types of Forex price charts:
- Line chart;
- Bar chart;
- Candlestick chart.
Consider the advantages and disadvantages of each chart separately.
What is a Forex line chart?
A line chart connects a series of data points to a line and is commonly used by traders to track closing prices. A line chart is the most basic type of chart, it can be used on any timeframe. A line on this type of chart is formed by combining closing prices for each of the periods on a given timeframe. However, this type of chart does not provide a sufficient understanding of the price movement within the day, since it contains only currency closing prices. However, many traders and investors prefer to use a line chart, since they consider the closing price more important than the opening price, maximum or minimum for a certain period of time.
The Y axis on any chart is used for the price scale, and the X axis for the time scale. The simplicity of the line chart is that it provides a clean visual display of price movements. This makes the line chart an ideal tool for determining support and resistance levels, trend lines and graphical models.
Pluses of the line chart
The line chart is very simple and straightforward. It is very easy to use even for novice traders. A line chart showing the behavior of the price allows the trader to easily identify support and resistance levels and identify graphical models.
Cons of the line chart
Line charts do not contain complete information compared to other charts. For example, on the line graphs you will see the prices of currencies for previous time intervals on the daily timeframe, but you will not know what happened during each day. In addition, the line graphs do not show price gaps (GAP), as there will be a line between the closing price on Friday and the opening price on Monday.
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What is a Forex bar chart?
The bar chart or as it is also called the OHLC chart (Open-High-Low-Close) is used as a tool for trading professional Forex traders to visualize and analyze currency price changes over time. OHLC charts are mainly useful for interpreting everyday market sentiment and for predicting any future price changes using the created models.
A bar is a column that has four price values: Open, High, Low and Close. This is a summary of what happened on the chart over a period of time. For convenience, you can assign a color to each of the bars in the OHLC chart to distinguish between bull and bear markets. The market is bullish when the closing price is higher than its opening, and bearish when the closing price is lower than the opening price.
The relationship between opening, maximum, minimum and closing prices creates patterns that allow the discerning observer to determine the driving force of this period of time, as well as the one who controlled the price. This is easy to see with bar charts.
The main patterns of bars on the Forex chart
Only one bar is capable of displaying a lot of information. Price changes during the bar period reflect the dominant beliefs of traders over this period of time. Consider the basic patterns of bars.
The reversal bar closes in the immediate vicinity of its opening, but with a maximum or minimum far from opening and closing. The picture below shows a bullish reversal bar.
Another bullish reversal bar, which shows the opening at the closing level of the previous bar and its closing above the maximum of the previous bar.
This is a strong confirmation that the bearish mood is over and a bullish trend is starting. The bearish reversal bar is a mirror image for the previous pattern.
An internal bar is a bar whose range is placed entirely inside the previous bar, which is an indicator of reduced volatility. Several indoor bars in a row can limit the price in a horizontal channel. Typically, the inner bars are the corrective movements of the previous impulse.
An external bar is a bar whose range exceeds the previous bar, which indicates an increase in volatility. External bars tend to be impulsive, although not always.
Pros of bar graphics
OHLC charts are important because they can show an increase or decrease in momentum. When opening and closing are far apart, it expresses a strong impulse. On the contrary, when the opening and closing are close to each other, it means a weak impulse. Highs and lows on the chart indicate the full range of prices of the period, which will be useful in assessing volatility.
Technical analysts draw a lot of different ideas from OHLC charts. Vertical height, horizontal line position, color of bars and bar patterns are important components of OHLC charts, and each of them has its own meaning.
Cons of the bar chart
For novice traders, bar charts can be quite difficult to read, unlike line charts. Alternatively, you can use candlestick charts, which, like bars, contain a lot of price information, but are much easier to read.
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What is a Forex candlestick chart?
A candlestick chart consists of a combination of Japanese candles. The filled part of the candle is called the “body”, while the long thin lines above and below the body represent the upper or lower range, which are called “shadows”. They are also referred to as “wicks” and “tails”. The upper part of the shadow indicates the maximum, and the lower shadow indicates the minimum.
A black or red candle (bearish) indicates that the currency closed lower, and a white or green candle (bullish) indicates that it closed higher.
There are many candlestick patterns on Forex, which you can see here.
Pros of candlestick chart
Compared to bar charts, many traders prefer candle charts, as they are more attractive and much easier to interpret. Each of the candles provides a simple and visually attractive picture of the price action of the currency, and a trader can easily compare the ratio between opening and closing along with a maximum and a minimum.
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We examined the main types of Forex price charts. The simplest is a line chart, but it contains little information about price changes over a given timeframe. The bar chart is used by professional traders due to the fact that it contains information about the opening, closing, high and low prices, but the bars are quite difficult to understand. The most attractive for both beginners and experienced traders is the candlestick chart. It also contains information on opening, closing, maximum and minimum prices, but at the same time it is easier to interpret the price. And thanks to the many candlestick patterns, it can be used for technical analysis and in most trading strategies.
See also the article "How to trade with the Price Action Strategy?".