Understanding charts is key if you want to learn forex trading. Forex charts allow traders to view currency exchange rates. They also help one determine market trends, interest rate movements, and other key economic variables that can play a role in trading decisions.
There are three types of charts that you are likely to come across in Forex trading: line, bar, and candlestick. Let’s explore!
This is the most basic type of chart used in finance and it is usually created by connecting a series of past prices together with a line. They can be very useful when you want to get a quick overview of the overall market situation and trends. However, these charts don't show individual price bars or candles, so they can be less useful than other chart types when making trading decisions about individual currency pairs.
Also known as OHLC charts (short for open, high, low, close), bar charts provide more information than line charts and are more useful when making individual trading decisions. Bar charts show the opening rates, the highs and the lows, and the closing rates of a given currency pair or financial instrument.
Bar charts show price bars for a given period of time. For example, a daily bar chart will show you one price bar for each day and a five-hour bar chart will show you one price bar for every five-hour period.
Here is how to read price bars:
- Top of the line (high): represents the highest price a currency pair or instrument traded
- Bottom of the line (low): represents the lowest price a currency pair or instrument traded
- Line on right side of bar (close): represents the closing price of a currency pair or instrument
- Line on left side of bar (open): represents the opening price of a currency pair or instrument
Candlestick charts are similar to bar charts but present information in a slightly different way. While candlestick charts also show opening and closing prices as well as market highs and lows over various periods of time, it does this using color as well as shape. Candlestick charts get their name because the shape of its individual units resemble candles.
Here is how to read each candle of a candle chart. For each time period measured:
- Top vertical line of candle (high): represents the highest price a currency pair or instrument
- Bottom vertical line of candle (low): represents the closing price of a currency pair or instrument
- Block in the middle of the candle: shows the range between the opening and closing prices. If the color is dark, the currency closed lower, and if the color is unfilled or light, the currency closed higher
Candlestick charts are very popular for a number of reasons:
- Candlesticks are easy to interpret and are a good place for a beginner to start figuring out chart analysis
- Candlesticks are easy to use. Your eyes adapt almost immediately to the information in the bar notation
- Candlesticks are good at identifying marketing turning points – reversals from an uptrend to a downtrend or a downtrend to an uptrend.
If you want to learn forex trading, learning to read charts should be one of your first steps. If you haven’t already, a great way to get to know them better is to log into MetaTrader 4 or MetaTrader 5 and explore their use. Exness offers a free, no-risk way to do this with our Demo account.
Interested in giving forex a try with your new forex chart reading knowledge? Open an account and trade with Exness for as little as USD 1.