Forex Charts

Charting provides a visual way to interact with historical price movements. While charts can seem complicated at first, they are fundamentally rather simple. Learning to read charts appropriately is an important skill, especially if you are interested in technical analysis, which can be a powerful tool to help time your trades.

Though charts come in many forms, the basic idea of Forex charts is to display historical price movements visually. Most charting software allows you to adjust the timeframe of the chart to show you anywhere from 5 minutes worth of data to 10 years worth of data depending on what you're trying to accomplish. Finding an appropriate timeframe is an important step in technical analysis.

This simplest chart is called the line chart. Line charts are simply a line following the forex quote. Often, lines for both the bid and the ask are plotted to give you an idea of the spread relative to price movements. Price is plotted along the vertical axis, while time is plotted along the horizontal axis. You are probably familiar with these types of charts, as they are used commonly for many purposes.

Bar Charts

A type of chart you might be less familiar with is called the bar Chart. Bar charts break time into discrete periods, for instance 15 minutes or 1 week. For each of these time periods, four components are determined, the open, close, high and low. The open is the first price seen in the time period, and the close is the last price. The high is the highest price seen in the time period, and the low is the lowest. These four components are drawn as a bar, as shown to the left. In a full bar chart, there are typically many of these bars combined to show price behavior.

Candlestick Charts

Candlestick charts are essentially the same as bar charts, but offer a more visually engaging idea of whether the price moved up or down. Candlestick charting was invented by Japanese technical traders. As shown to the right, there are three main components to the candlestick, the real body, upper shadow and lower shadow. The upper shadow extends to the high, while the lower shadow extends to the low. The length of the real body shows the difference between the open and the close. When the real body is colored white, it means that the close was higher than the open, and when it is black, the close was lower than the open.

These three types of charts are the types of charts most commonly used by technical traders. There are countless strategies for making and timing trade, and the strategies themselves are beyond the scope of this website, but learning how to properly read charts is very important for becoming a successful trader. For more information about technical trading, I would recommend the following book at the bottom of this page.

Now that you understand how to read Forex charts, it is time you understood Forex Orders.