Any forex trader needs to know how to use currency trading charts. Most retail traders base their trading almost entirely around technical analysis tools which are based on forex charts. Even those who base their trading on fundamental analysis will use charts too.
The advantage of using currency trading charts to make forex trade decisions is that you do not need to know anything about international finance and economics to understand them. You simply consult your chart and whatever indicators your system recommends, and go ahead and trade.
There are three basic types of chart, on top of which you would lay indicators to show moving averages or overbought and oversold ranges.
First, line charts are the most basic form of forex chart. They simply show the closing price for each period, joined with a line. You can select different periods to give you a close up or a long term view. It could be one minute, one day, or something between.
Line charts are good for getting a quick overview of trends in price movements. You could use a five minute line chart to take a quick look at how prices moved through one particular day, for example.
Second is bar charts. These will show as a staggered cross for each period. They give more information than the line chart. As well as the closing price (a bar on the right of the cross) they show the opening price (bar on the left) and the high and low during the period (top and bottom of the vertical line).
Although bar charts are more informative than line charts, they are not widely used because you can get the same information in a much more visual form by selecting the third type of chart.
This is the candlestick chart which is most traders’ tool of choice. You still have the high and low shown by the top and bottom of the vertical lines (known as wicks), but the open and close prices mark the top and bottom (or vice versa) of a block that forms the body of the candle.
The shading tells you whether the open was higher or lower than the close, so you can see at a glance whether the price rose or fell during the period. You can also easily see how far the price went in the opposite direction before settling at its close. All of this information is important and can give a trader the first step in developing a profitable trading system.
Speed is important in forex trading. Traders want to be able to make decisions fast without confusion or mistakes. Therefore, most technical analysis forex trading systems are based on the candlestick chart. For most traders, candlesticks are the best of the currency trading charts.
