Getting to know the types of price charts in Forex
Foreign currency trading, more commonly known as forex trading, involves buying and selling currencies in currency pairs through online platforms or brokerages. Forex is a highly liquid market with a turnover of several trillion dollars per day. Traders use different types of charts to analyze market behavior, as well as to help more easily interpret data to make informed decisions about their trades.
Forex price charts act as a vital tool for traders to check the past and present price performance of currency pairs. These charts help traders identify trading opportunities, determine entry and exit points, as well as manage risk and capital. A diverse range of available chart types help traders choose the most suitable one to analyze a particular market. The most common types of Forex charts are as follows:
1. Linear Charts
One of the types of price charts in Forex are linear charts, which are the simplest form of price charts and draw prices consecutively as a line in a chart. The linear chart connects the closing prices of each trading session, and thus the trend of price changes is determined compared to previous trading sessions, the linear chart is more suitable for long-term analysis of trends and overall market behavior, and may not provide enough information for short-term traders to make quick decisions. One of the main advantages of using a linear chart is that it allows the viewer to quickly and easily see how a particular dataset has changed over time and makes it easy to detect patterns and trends, this feature is especially useful when checking with large data sets and high timeframes, as it allows you to quickly process unusual trends. But on the other hand, the main limitation in using this chart is that it is difficult to accurately show market volatility, especially in short periods of time, in addition, if you intend to use this chart in short periods of time, due to the large number of price points, the linear chart may be messy and difficult to read.
Linear charts are also useful when comparing multiple financial products. Using different color lines, it is possible to draw multiple charts side by side and compare them with each other. This feature can be useful for identifying potential cause and effect relationships between two different financial products. In general, linear charts are valuable tools for analyzing and drawing price charts, especially when we want to analyze price trends or identify abnormal price trends and movements, or look for correlations between different charts.
2. Bar Charts
Bar charts are another category of charts used by traders that are more detailed than line charts because each price bar shows the high, low, open, and close of a trading session. The vertical line on the chart represents the trading range between the highest and lowest price of a particular trading session. The horizontal lines show the open and close prices, with the open price indicated by a small line to the left of the vertical line and the close price indicated by a small line to the right. Bar charts are useful for identifying movements, resistance and support levels.
One of the advantages of bar charts is that they are easy to read and understand, even for people with no background in price data analysis. The simplicity of the design makes it possible to quickly identify trends and price patterns in the data presented.
Of course, after the introduction of Japanese candle charts in the financial markets, the use of bar charts has been greatly reduced because the Japanese candle chart contains all the data in the bar chart and makes them more understandable, especially in quick reviews.
3. Japanese Candle Charts
Candlestick charts, also known as Japanese candlestick charts, are one of the most widely used tools for technical analysis in financial markets. These charts are used by traders to identify market trends, patterns and potential reversal points of a financial product. Candlestick charts are similar to bar charts but use a different visual representation of price data. Candlestick charts are made up of individual candles, each representing a specific time frame such as a day, a week, or an hour depending on the time frame of the chart.
Each candlestick represents four prices for a particular trading session: the opening price, the closing price, the highest price, and the lowest price traded in that trading session. In this chart, the body of the candlestick represents the difference between the opening and closing prices, and the upper and lower shadows of the body represent the highest and lowest prices recorded in that trading session.
Japanese candlestick charts are useful for short-term analysis and provide more in-depth information about price action than bar and line charts, including buyer and seller sentiment, and reversal patterns.
The shape and color of individual candlesticks provide traders with important information that indicates the strength or weakness of an asset's price movement. If the closing price is higher than the opening price, that candle is usually green or white, indicating an uptrend. If the closing price is lower than the opening price, the candle will usually turn red or black, indicating a bearish price movement.
There are various patterns that traders look for in candlestick charts to make informed trading decisions. For example, a bullish sweep pattern occurs when, in a downtrend, a small red candlestick is followed by a larger green candlestick that completely covers the previous candlestick. This is called a bullish sweep price pattern. This pattern can represent a point. A potential reversal in a downtrend.
Another common pattern is the Doji candlestick، which is formed when opening and closing prices are essentially the same، indicating a lack of market decision. A doji could represent a potential rebound point in the current trend, as traders may be uncertain about the continuation of the current price movement.
Candlestick charts are a highly accepted tool in technical analysis due to its simplicity and ease of use. They provide traders with a clear visual representation of past price movements and potential future trends, helping them make more informed trading decisions. By understanding the patterns and signals that can be obtained from these charts, traders can increase their chances of success in the financial markets.
4. Renko Charts
Renko chart is a charting technique among traders that was first introduced centuries ago in Japan. This chart is created using Renko bricks, which are basically charts made up of brick-like sections. Renko charts focus on price action and ignore time and volume. Instead of showing constant price updates, the focus is on significant price movements, often referred to as trends.
In Renko charts, each brick is added to the chart only when a certain level of price reversal occurs. The size of the brick is predetermined and can be adjusted by the trader. For example, if the brick size is set to 10 units and the market moves up 11 units or more, a new brick is added to the chart. Similarly, if the price drops by 11 points or more, a new chart is created with a bearish brick. So the Renko chart provides the trader with a clear picture of the price changes, without unnecessary noise, just by adding bricks to the chart when there is significant price movement.
As mentioned, one of the advantages of Renko charts is that it helps the trader to have a clear view of price movements by eliminating the noise that is created when using other charts. For example, time-based charts can often be cluttered with too many price updates, which can cause the trader to miss important trends. By only showing significant price movements, Renko charts provide a clearer picture of the larger trend and make it easier for the trader to identify key support and resistance levels.
Renko charts also help provide a more objective view of the market. Since they only focus on price movement and ignore volume and time, there is no need to interpret data or use subjective indicators, which can make it easier for the trader to identify trends and trading opportunities.
In short, Renko charts are a unique graph method that focuses on significant price movements and ignores time and volume. This chart provides a clearer picture of trends and makes it easier for traders to identify key levels of support and resistance.
In the Forex market, various types of charts are used to show the price trend of currencies, including line charts, candlestick charts, bar charts, etc., which we talked about in this article. Each chart has its own characteristics and advantages that help users predict price movements.
By using price charts in forex, analysts and investors are able to identify price patterns and use them to predict market developments. Also, price charts are very important for making decisions about market entry and exit and capital risk management. If you want to get a better understanding of the forex market, we suggest that you also read the article What is the forex market.