Whether you are an occasional forex dabbler, or you are taking that leap of faith and hitting the forex market full-time – all forex traders need to know their charts. These are like navigational instruments for pilots: if you don’t know how to use them, then you’re going to meet the ground long before you intended to land.
Essentially, there are four basic charts that you need to know, and know extremely well. All of them possess necessary information so that you can make knowledgeable trades, and they differ in what information they divulge to the trader. In being able to differentiate and identify this information, interpreting it into signals is gold to a forex trader.
Guest post by FXTM
These are the four charts that you need to master before you leap into forex trading:
#1: Tick Chart
This chart is the most watched when seconds count, as it represents the smallest scale of price movements in currency pairs. Usually, you’re going to want to keep a close eye on this chart when you’re just about to buy or sell.
This chart carries two basic representations of the price, shown as upper and lower parts. The upper is your ‘ask’ price, and your lower is the ‘bid’ price. Essentially, you would be using this chart only after you’ve consulted the other three charts -as this particular one is only used in those second-by-second decisions.
#2: Bar Chart
Your bar chart is one of the best tools in analysis of a currency pair. The reason for this is because it can show the trader the highs and lows of a certain price in the day, while showing the price at opening and closing. It does this through representing price movements in a vertical ‘bar’. The opening price represents an adjacent horizontal bar that extends to the left, while the closing price is the bar that extends to the right.
There are volumes of information that a trader can glean from this particular chart, which is why it is usually one of the first places a trader goes.
#3: Line Chart
The line chart is an overarching analysis tool, which is perhaps the most simple of the four. Essentially, the line represents the price as it moves through time, and it can help the trader gain a ‘big picture perspective’ of what the currency pair has done in the past. Perhaps the best part about the line chart is that reading it is simpler than a bar, tick, or candlestick chart – most say that it removes the clutter.
#4: Candlestick Chart
While the candlestick chart is the most complex, it divulges the most information about a currency pair’s price.
First, the thick body of the ‘candlestick’ is basically a representation of the price between opening and closing. The ‘hair’ (the line protruding from the top) and the ‘tail’ (the line on the bottom) represent the price’s highs and lows during the segment of time that the candlestick was representing. Also, if the price was higher than it was at closing, the candlestick will be colored a ‘bullish’ green, or white. If the price went south, the candlestick will be black or red.
Further reading: Use Higher Time Frames
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