Understanding how to use a foreign exchange chart is vital for the forex trader. While the foreign exchange market is clearly driven by business (i.e. Fundamental) factors, most traders like to make their trading calls on the grounds of charts and indicators, since these are open to anybody and do not need a deep understanding of global economics. That’s especially true when Forex traders use alerts such as MT4 Alert.
The first point in lining up your technical research tools is to make sure that you are using the kind of forex chart that suits you best. All forex trading charts show movements in prices for a currency pair but you can change how you view them. There are 3 basic types of chart:
1. Line charts
Line charts simply show the closing price for each period. You might set this to show the closing price at the end of every minute, the end of each day or many different periods between. This will give one point for each period and these are joined by a line to show the direction of the price movement.
Line charts can be handy if you need a quick helicopter view of a trend. They don’t give much info so very few traders would base a trading system on line charts.
2. Bar charts
Bar charts give four times as much information as a line chart. As well as the closing price, given as a notch on the right of the bar, they show the opening price with a nick on the left, and the high and the low (top and bottom points of a vertical line).
being able to see the range of movement inside a period can be very helpful. It can give a suggestion of volatility of the currency pair, and in some cases, indicate when a retracement may be about to happen.
3. Candlestick charts
Candlesticks are the most well liked type of currency exchange chart. They show the low and high for the period in the same way as a bar chart, but the open and close prices are shown by the range of the candle body. If the open is higher than the close, i.e. The price slid in the period, the candle will be shaded in a white/shaded system or red in a green/red coloured system. If the close was higher than the open, i.e. The price increased during the period, the body of the candle will be white or green.
The shading or color makes it simple to see the direction of price movement at a peek. The scale of the candle body makes it similarly straightforward to see the range of movement between the open and close. This is very helpful when trying to find patterns in currency movements in prices. It makes it simple to spot trends, unsettled markets and retracements.
Whatever sort of foreign exchange chart you use, you will be ready to change the period of time that point, bar or candle covers. This enables you to see changes in price over a longer period or focus in to view the changes every minute. Many traders will use a second time period in the chart to test that their signal isn’t contradicted with a different chart setting. Of course, you may use other technical analysis tools such as indicators to determine your decision before placing an order on the basis of your forex chart reading.
