Different Types Of Forex Charts
July 23rd, 2009
Know these forex charts types.A picture is worth more than a thousand words. The forex chart is perhaps the best proof of this cliché. Have you heard of Candlestick Charting? It was developed by the Japanese in the 17th century to profit from rice trading. Develop your own forex trading system.
Over time, traders have become very sophisticated in understanding charts and the information contained in them. In fact appearance of certain chart patterns can give you priceless clues about the direction in which the market is about to turn. Don’t confuse the Head and Shoulder pattern with the name of a shampoo. Know these forex broker games.
Study of charts is known as Technical analysis. Whether it is sideways, upward or downward, by studying the patterns that appear on the forex charts, you can predict the likely direction of the currency pair. Technical analysis depends on the study of different types of charts to understand and predict the likely direction of the currency market. Without technical analysis, you won’t be able succeed in forex trading.
There are four main types of forex charts that are used in the world of forex trading. The four main types of forex charts are: 1) Line Chart, 2) Bar Chart, 3) Candlestick Chart and 4) Point and Figure Charts (P&F Charts). A brief description of each one is given below.
Line Charts: This chart resembles a line hence the name line chart. This chart simply connects the closes from one period to another. Critical data is missing from a line chart as a line chart doesn’t show you where the currency pair opened for the period. It only shows where it closed. Nor does it points the high and lows for a period.
Bar Charts: The bar chart addresses many of the shortcomings of the line chart. It is also often called the OHLC (open-high-low-close) bar chart. The bar chart can provide the hourly, daily, weekly and even monthly information.
A horizontal line protruding from the left of the bar represents the opening price of the currency pair. A horizontal line protruding from the right of the bar represents the currency pair’s closing price. The periods high and low are the top and bottom of the bar.
Candlestick Charts: This chart clearly depicts the currency pair’s open, high, low and close. Traditional bar charts do the same. But candlestick charts do it more effectively. A candlestick chart is made up of two components.
The range between the open and the close is called the real body of the candle. It is also called the candle body. The price movement above and below the body is called the shadows. It is also known as the candle shadows. If the currency pair closing price is above the opening price, the candlestick body is white and it is taken as a bullish sign. Similarly if the closing price is below the opening price, the candlestick body is painted black and it is taken as a bearish sign.
Point and Figure Charts (P&F): Point and figure charts plot the currency pair price using a column of Xs to represent rising price movements and Os to represent falling price movements. The main advantage of the P&F charts is that they filter out noise. The only downside is that they don’t represent the time well.
The new plot is only made when the price exceeds the predetermined threshold by a fixed amount. The Xs and Os are plotted only when the currency price moves by a predefined amount. A plot may not be made if the currency price does not move significantly.