In case of technical analysis a forex trader is always using a graph, also called a forex chart, on which the price development is reproduced. There are three kinds of forex charts, which in actual practice are the most applied, namely the so called line chart, the bar chart and the candlestick chart. In this article you’re going to learn the advantages and disadvantages of these different kinds of forex charts.
Next to the different kinds of forex charts, also a distinction is made between the so called time frames. This way forex traders will be able to use charts which are based on the price development by per minute up till and including charts which are based on the price development per month. Independent of the kind of chart, you can always use different timeframes for this chart.
Now I’m going to attend to different kinds of forex charts as well as the advantages and disadvantages of each forex chart. It’s important to mention beforehand that in case of the OFS Trading System we are used to apply the candlestick chart.
The line chart is the most simple forex chart, however in actual practice this chart is seldom being used, because in all its simplicity this chart consequently also contains little information.
The line chart occurs by connecting all closing prices with each other, but because of this you’ll have no insight on the interim price movements. The only advantage of using the line chart is caused by the fact that the price movement on the long run is being visible at a glance.
The line chart:
The bar chart is being used a lot more frequently when compared with the line chart, but less frequently when compared with the candlestick chart.
On the bar chart the most important information is being reproduced, namely the high and low of the time interval, but in addition to this also the opening price as well as the closing price:
On the above shown figure you’ll see two kinds of bars as being used on a bar chart. By means of a vertical bar the range of the price is being shown during the time intervals, the bottom side indicating the low and the upper side indicating the high. By means of a horizontal bar on the left side the opening price is indicated and on the right side the closing price is indicated.
The bar chart:
The most popular forex chart is the candlestick chart. On a candlestick chart you can see the same information as on the bar chart, but the candlestick chart is easier to interpret, as you can see all the important information at a glance.
First of all it’s reproduced, by means of two different colors, whether the price has been risen or dropped in relation to the opening price. Generally speaking for this purpose the colors green and red are being used, green indicating a rise and red indicating a drop.
The thick part of the candlestick is also being called the body of the candlestick. This body indicates the difference between the opening price and the closing price.
In case of a green body, the bottom side of the body represents the opening price and the top side of the body represents the closing price. In case of a red body, the top side of the body represents the opening price and the bottom side of the body represents the closing price.
Next to the body on the candlestick chart the shadows reproduce the development of the high and the low. The Upper Shadow reproduces the high, while the Lower Shadow reproduces the low.
As the price development by means of candlesticks is being reproduced very visually, many forex traders prefer the use of candlesticks. Besides there are many specific candlestick patterns, which are employed by forex traders in order to predict the price action or to use them as a confirmation.
The candlestick chart:
By now you should have got a clear view of the different kinds of forex charts, but, as indicated before, in case of the OFS Trading System we by far prefer to use the candlestick charts, because you’ll be able to obtain most of the needed information from these charts. As a consequence in the next article I’m going to consider at length the lot of information which you will be able to obtain from a candlestick chart.