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.
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.
Conclusion
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.