Types of Charts That You Will Come Across While Trading Currencies Online
If you read the last section, one of the things you should have got out of it is that charting is important when you are trading currencies online. In fact, one of the reasons that forex trading has become so popular with traders who work from home, is that the kind of information that was only available to professionals in Wall Street and The City 5 years ago, is now readily available online.
There are lots of types of charts, and different ways of looking at them. There are also many tools that you can use to spot patterns within charts (more on that later). Take a look at the etoro forex charts we have on the site here for a basic intro.
For now, we are going to run through three kinds of charts that you are most likely to come up against.
(i). The Line chart
(ii). The Bar chart
(iii). The Candlestick chart
The Line Chart
A line chart is the most simple way of graphing currency price movements. The chart follows the closing prices by the selected scale (1 minute, 1 hour, 4 hour- depending on what you select). This shows you the overall movement of the price of one currency against another and is a useful starting point. Start off on a big scale (say one year graph) and then zoom down through the shorter time periods and you will start to get a feel for the underlying trend. Note, that the short term trend may not be the same as the medium term trend which may not be the same as the long term trend.
Have, in the back of your mind, the type of trading that you are interested in. Are you going to open up a position over the long term or short term? This should help you focus out the “noise” and focus in on the relevant direction of movement on the right chart.
The Bar Chart
Of course, there is alot more going on in the currency markets than just closing prices. Within the time period you are looking at, you would have had an opening price, a closing price, a highest price and a lowest price. Bar charts are used to display this level of information. The bottom of the bar is the lowest price reached and the top of the bar shows the highest price attained. Then there is a horizontal tick on the left side of the bar which is the opening price, and a tick on the right which is the closing price.
I am pretty sure that sooner ot later you are going to be spending most of your time looking at forex Candlestick Charts.
In these types of charts, the price range is again shown as a bar but the bar in the middle shows the opening and closing prices. If the bar in the middle is black or red, then the movement was down. if the bar is white or green, then the movement was up.
Any price movement outside the opening and closing prices in the time period is represented by a thin line extending out from the bottom or top (or both) of the bar. Different types of candlesticks have quite exotic names, so you’ll be getting to grips with Tweezer Tops & Bottoms, Three White Soldiers and Harami candlesticks among others.
If you have a choice, we recommend you use line charting and coloured candlesticks. They are easier to spot patterns on.