A forex chart refers to the graphical depiction of the historical prices of the currency pair in question, it may or may not concern a particular time frame. Technical analysts and day traders use charts in their analysis of who-done-it patterns to anticipate the unfolding of price reversal and continuation, besides clearly defining exit and entry points that are profitable, quite soon.
Forex traders’ charting software and forecasting software are used to see the likely near-term direction of a currency pair.
A forex chart is sometimes synonymously referred to as a currency chart.
Exploring Forex Charts
The only way a forex chart can show anything is by reflecting on the past. Technical analysts suggest that past events are a good indicator of future price movements.
Technical analysis of currency prices, stocks, or any asset of the market is done by scrutinizing the historical market prices and technical indicators to forecast the future movement of an asset.
The analysts are of the view that short-term price movements reflect the supply and demand forces in the market for a particular asset. Therefore, for analysts, the fundamentals of an asset are not as important as the current balance between buyers and sellers.
Line, bar, and candlestick chart types can be used when creating forex charts. The charting program allows for any time frame, thus making tick data, yearly data, and any period in between charting possible.
How to Read Forex Charts like a Pro?
A trader who is familiar with how to interpret a forex chart is developing his/her trading skills and also reducing the risk of being involved in the trading of currency pairs.
You can get the information given below by seeing a forex chart:
- Currency Pair refers to the asset, the name of its ‘base’ currency first, and ‘quote’ currency second.
- Price: the cost of the base currency is quoted as the number of the quoted currency. So, that is to say, you will need the y-axis on the chart to see how many dollars you have to invest to get one pound.
- Time frame: the chart that allows you to change the period is plotted on the x-axis
Pips on Forex charts
Pips on forex charts are also called ticks. Pips without a doubt, are regarded as the ‘smallest unit’ of measurement in price movements of currency pairs. Pip represents the smallest possible variation in the value of the given currency within a currency pair. For instance, if the price of the pair GBP/USD increases from 1.4190 to 1.4191, 0.0001 is the change in value of the USD, which is only one pip.
Forex chart time intervals
You can view the present performance of a currency pair’s price, or you can set the period to get information about how it has changed. Anything can be used for a period from ticks, seconds, minutes, and hours, to days, weeks, and months.
How to Analyze Different Types of Forex Charts?
Thus, there are four most popular kinds of chart used in Forex namely candlestick, HLOC, line, and mountain chart all of which are interpreted in different ways. The kind of chart you are going to use in this case will depend on the user preferences though the most common are the candlestick and HLOC charts because they include much more information than what is contained in the line and mountain kind of charts. =
Let’s dive to see various types of forex charts and how to read them:
1. Candlestick chart
Candlestick charts are essentially a graphical price representation of the current market where the pricing information is presented in long thin bars that almost look like candles.
Every candlestick represents the price change in the interval you choose. For example, if you take a 15-minute chart, each bar on the chart reflects how prices unfolded within 15 minutes; the final bar is different from the others since it reflects the real-time movement of prices in the last incomplete bar.
In simple terms, an uptrend is usually marked with green bars, which means that the pair gained price value during the specific time frame and closed higher than when it opened. Conversely, a red candlestick means that the specific pair’s price fell lower than the price at which it started.
Moreover, each candlestick will specify four certain prices for the currency pair:
- Open: the initial price mentioned at the beginning of the period under consideration
- Close: this refers to the price at the closing period
- High: the maximum price of the securities offered during the period
- Low: The volume of transactions over the specified time and for which a period is applied.
Candlesticks with price labels
For instance, the four prices in a candlestick and their relationship can tell you much about the prevailing market conditions and who is in control of prices – buyers or sellers.
Candlesticks that are long and have short wicks
Candlesticks that reach the very extreme length on the upward vertical line towards the green color mean a lot of buying pressure while long embraces a lot of selling pressure attested to by the candles in the downward red bar.
Small real bodies accompanied by long shadow wicks
On the other hand, lengthy wicks but truncated bodies suggest that there was significant enforcement in a particular way but the price was driven backward before the end of that given period.
2. Dojis
Slightly more often the opening and closing prices will be close to each other and are termed a ‘black cross’ or ‘doji’. This means that the market lacks positive leadership where either buyers or sellers are in a position to dictate the next course of the prices within the market.
Usually, a Doji by itself signals nothing and is not even a technical indication of much importance by itself. Nevertheless, when Doji appears within a system, it might point out that a reversal will occur shortly.
3. HLOC chart (also called a bar chart)
The next type of chart, HLOC, which stands for ‘high, low, open, close’, shows the same data as a candlestick chart, but in a different way:
- They also added that the open price is represented by the tick mark to the left of the vertical line.
- The close price is indicated next to the vertical line along with the notch.
- The low price is the lower end of the vertical line
- The lowest price is represented by the position located at the end of the vertical line.
Green and red HLOC bars
Again, the line will be green if the price of a currency pair was high at the end of the period relative to the initial amount, and that it was low if it was the opposite. It is quite right that Dojis can be formed when average opening and closing prices are the same.
4. Line chart
However, compared with the Candlestick or HLOC chart only identify the closing price of the period selected by you (for instance one hour). The values of closing prices are connected successively so that they form a line at the end of each property.
However, it is a very simple way of presenting the pricing data because one cannot even tell the high, low, or opening price for the period in question. That is why many forex traders use only the line charts if they analyze long-term tendencies where some of the extra information can be less valuable for short-term pattern detection.
5. Mountain chart
The last type of chart is called a mountain chart. This is similar to the line chart, but the line is filled with color made to resemble a silhouette of the mountain. As with line type, this type is primarily used to evaluate long-term trends as high, low, and opening prices for each period are missing.
How to Make a Forex Chart?
You can design the technical overlays and the interactive tools with the broker’s own online toolkit. The forex-only platforms and the charting software may also be utilized by experienced traders who need more functionality.
Conclusion
In conclusion, even if you have not closely followed technical analysis you can still get useful information from a forex chart. The process of examining historical trends and contributing factors of any currency pair traded on the forex will guide you on when to buy and when to sell.