A large majority of traders use charts extensively. Therefore, it is important to have a sound understanding of the basics of technical analysis.
A line chart is the simplest type of chart. As shown in the chart of EUR/USD below, the single line represents the closing price on each day. Dates are displayed along the bottom of the chart and prices are displayed on the side(s).
A line chart's strength comes from its simplicity. It provides an uncluttered, easy to understand view of a security's price over a given period of time.
A bar chart displays a security's open, high, low, and closing prices for each time period. Bar charts are the most popular type of security chart.
As illustrated in the bar chart below, the top of each vertical bar represents the highest price that the security traded during the time period, and the bottom of the bar represents the lowest price that it traded. A closing "tick" is displayed on the right side of the bar to designate the last price that the security traded during that time period. If opening prices are available, they are signified by a tick on the left side of the bar.
Candle Stick Charts
Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that highlights the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at prices, they don't involve any calculations.
Each candlestick represents one period (a day, an hour, a minute, etc.) of data. This diagram shows how to read a candle:
The trader might choose different colors for their candlesticks (blue/red, white/black, etc), but the idea is always the same.
Understanding chart types can be beneficial for Forex traders. Looking at historical patterns and charts can give some traders an advantage when combined with fundamental analysis and technical analysis indicators. Although past trading results are not indicative of future trading results. You can find the chart style that works best for you. Line charts have different advantages for viewing price data compared to bar charts or candlestick charts, which show highs and lows, opening or closing prices. Of course, there are other chart styles but the line, bar and candlestick charts are among the most widely used. Other charts are relatively the same in terms of the information they provide. By choosing a Forex trading platform that gives you a lot of charting options, you can get various perspectives on what others may be looking at.
HIGH RISK WARNING: Foreign exchange trading carries a high level of risk that may not be suitable for all investors. Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance. You could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions.
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