Types Of Charts
Charts are best used by traders to monitor price movements and decide when to open and close their trades. There is a wide variety of trading charts, and all of them essentially illustrate the same information, with slight variations. Not all traders are comfortable with a single type of chart. Short-term traders, such as Day Traders, will typically use a candlestick stick charts or bar charts as these charts show more information than a simple line chart.
A line chart depicts only the closing price of an asset and gives traders a quick and fast overview of where prices have been. But this chart view is limited as it only captures the closing price of a Forex pair. Bars and candlesticks provide more data, and thereby a more complete picture of the market.
A popular trading chart form is the Bar chart, which is relatively easy to use and provides a lot of useful information to read and interpret the market. Bar charts consist of an opening price foot (facing left), a vertical line and a closing price foot (facing right). Each bar also includes the high and low price that occurred during a specific time interval.
It is up to the traders to set their preferred trading interval. For instance, if a day trader chooses to view a 1-minute-chart, then new bars will be formed every single minute, and each bar chart will illustrate the open, high, low and closing levels for each minute. The most commonly used intervals are the 5-minute-chart, 30-minute-chart, 4-hour-chart, and the daily chart.
Japanese Candlestick Chart
This is the most commonly used charting system by traders and investors as it gives detailed insights into the price levels of any financial instrument. To create a Japanse candlestick chart, we use the open, high, low and close prices values for each time period sought to show.
The filled or hollow portion of the candlestick is the "body," but most trading platforms today, will either show a green candlestick when the price has gained during the set time frame and red if the price declined during the set time frame.
The thin lines above and below the body represent the high and low range of the period and people call these lines “shadows” or “wicks.”
The highest price level is marked by the top of the upper shadow and the lowest by the bottom of the lower shadow. If the Forex pair closes above its opening price, a hollow or green candlestick is formed with the bottom of the body representing the opening price and the top part of the body representing the closing price. If the reverse happens, a filled or read candlestick is created with the top part of the body showing the opening price and the bottom part of the red body showing the closing price.