Charts are essential for your technical analysis. Besides, what is analysis without a chart? You’ll need your forex charts when you’re applying analysis, which we will talk about in this chapter.
Gambling is not like forex trading for beginners.
Sure, there are risks involve. But the difference between the two is that gambling is relying on luck.
But with forex trading, you need to have analysis to know when to make a move. This is where forex charts come in.
These are the necessary tools you need. Whatever trading strategy or method you’re using, viewing a chart and applying technical analysis are very convenient.
It’s amazing how a chart with associated patterns can bring a wealth of information in the simplest terms.
A line chart shows you a good snapshot of market direction. It draws a line from one closing price to the next closing price.
If you connect the prices together, you’ll see the general price movement of a pair over a period of time.
Here’s an example of line chart for EUR/USD:
This chart is bit more complex than a line chart. A bar chart shows the opening and closing prices, and the highs and lows.
The top of the vertical bar shows the highest price traded during that time, while the bottom of the bar indicates the lowest price paid during that time period.
And the vertical bar indicates the pair’s trading range as a whole.
You’ll also notice that each individual bar has a hash on the left and on the right sides of the bar. The left side indicates the opening price during that time period, and the right side indicates the closing price for that time period.
Here’s an example of EUR/USD bar chart:
Let’s take a look of a close up version:
Open – this is the opening price.
High – this indicates the highest price of the time period.
Low – this indicates the lowest price of the time period.
Close – this is the closing price.
Candlestick charts are more fun and useful to look at than the other types of forex charts. This type of chart is similar to the bar chart but in a graphical format.
Like a bar chart, a candlestick bar indicates the high-to-low range with a vertical line.
The vertical line above the body is called the upper shadow, while the bottom is called the lower shadow.
The body in the middle indicates the range between the opening and closing prices.
If the body in the middle is filled with a darker color, then the currency pair closed lower than it opened.
On the other hand, if the body in the middle is white or filled with a lighter color, then the closing price is higher than the opening price.
Here’s an example of a EUR/USD candlestick chart:
And here’s a close up view of the candlesticks:
You might be wondering why candlesticks have different bodies and length.
Long white candlesticks show strong buying pressure. See, the longer the white candlestick, the further the close is above the open. That means, buyers were aggressive and made prices increasing significantly from open to close.
Long black candlesticks show strong selling pressure. The longer the black candlestick, the further the close is below the open. That means, sellers were aggressive and sent prices falling a great deal from the open.
Do you need all these charts? In fact, you’ll find several of them in later chapters. They are required for your analysis, which we will talk about in the next chapter.
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