Knowing how to use a forex chart is critical for the forex trader. While the foreign exchange market is certainly driven by industrial (i.e. Fundamental) factors, most traders wish to make their trading choices on the basis of charts and indicators, since these are open to anybody and do not need a deep appreciation of world economics. That is particularly true when traders use alerts such as MT4 Alert.
The first point in lining up your technical research tools is to ensure that you are using the type of forex chart that suits you most perfectly. All forex trading charts show price movements for a currency pair but you can change how you view them. There are three basic kinds of chart:
1. Line charts
Line charts simply show the closing price for each period. You could set this to show the closing price at the end of each minute, the end of every 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 want a quick overview of a trend. However, they don’t give much information so only a few traders would base a trading system on line charts.
2. Bar charts
Bar charts give four times as much info 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 notch 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 within a period can be exceedingly handy. It can give an indication of volatility of the currency pair, and in a few cases, indicate when a retracement could be about to take place.
3. Candlestick charts
Candlesticks are the most popular kind of forex chart. They show the high and low 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 fell in the period, the candle will be shaded in a white/shaded system or red in a green/red colored 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 easy to see the direction of price movement at a peek. The size of the candle body makes it equally simple 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 easy to spot trends, troubled markets and retracements.
Whatever sort of foreign exchange chart you use, you’ll be in a position to change the time period that point, bar or candle covers. This lets you see movements in prices over a longer period or focus in to view the changes every minute. Many traders will use a second period of time in the chart to check that their signal is not contradicted with a different chart setting. Naturally, you may use other technical analysis tools like indicators to determine your call before placing an order on the principle of your forex chart reading.
