Types of Forex Trading Charts

Forex trading charts are one of the central tools for data analysis in forex, and with absolute certainty you will at some stage in your trading career rely on these various different types of chart to make trading decisions.  Essentially, forex trading charts are simply a graphical representation of numerical pricing data, which is presented in a particular format to make it easier to identify patterns and takeaway points for future trading decisions.  But to the outsider and uninitiated, forex trading charts can appear at first to be especially complex, and until you understand what each type of trading chart means, investing from chart based decisions will be beyond reach.

Forex trading charts are broadly classified into three different categories, which we’ll investigate in turn below.

Candlestick

Candlestick charts are perhaps the most confusing of the three main types at first glance, but they actually contain a wealth of relevant information that can help you make your trading decisions.  Rectangular entries resembling candlesticks are plotted on a graph, much in the same way as a bar chart, but showing in different colors (usually white/transparent and another contrasting color).  The white candlesticks represent where the opening price of a currency is lower than its opening price, while the reverse is true for the colored candlesticks, and the length of the tails (or the would-be candle wicks) top and bottom show the price level at the extreme daily highs and lows.  The horizontals show the price points of open and close, to complete the picture.

As you can see, candlestick charts contain a wealth of information for the trader, and present it in a graphical format that becomes easy to understand with familiarity.  Particularly when you are familiar with which color signifies a positive and which a negative market outlook, it becomes easy to see how the markets are responding to a particular currency pair to better advise your trading decisions.

Bar

Similar in style to candlestick charts, the bar chart is probably the default option for most traders, because it is so simple to understand.  Each trading data set is represented by a vertical line with the daily high at the top of the line and the daily low at the bottom.  Traders can easily identify the opening price, which is marked with a horizontal line to the left of the vertical, and the closing price which is marked with a horizontal line to the right of the vertical.  The bar chart contains similar information to the candlestick chart, and its simply a matter of personal preference in choosing between these two forex trading charts as to determine which one best suits your needs.

Line

Line graphs are also widely used in forex trading, although they are less information-intensive than the previous two classifications.  Whereas a bar chart and candlestick will show a significant amount of information on which trading decisions can be based, whereas a line chart only serves to make it easy to identify wider price trends.  Most relevant when taken over a longer time period, the line chart offers little to the trader beyond a broad picture of price trends, and as such is arguably the least favored of the forex trading charts mentioned.

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