What does a Forex Chart look like?
Forex traders who wish to improve their trading and take on technical analysis need to use charts. The MetaTrader 4 (MT4) platform is a favoured platform by traders for its charting capabilities, in terms of ease-of-use and customisation.
We will now cover the three most commonly used charts as featured on the Vantage FX MT4 platform and how they are used for technical analysis.
Forex Line Charts
The line chart is the simplest trading chart formed by connecting the series of closing prices over a designated time period. It allows the trader a quick view of movement over time.
The curving line laid on top of the line chart below is the Moving Average Line Chart. It traces out the averages of price movements reconciling isolated spikes, outliers and fluctuations.
Line charts are normally used for very short term intervals (ideally 5 minute intervals – maximum 30 minute intervals).
Forex Bar Charts
The Bar Chart displays a series of indented vertical lines which aim to visually represent price activity over a given period of time. These bars combined with their overall collective movement allow for general trends and patterns to be identified.
These vertically indented lines appear for each trading period on the chart. The upper tip of the line represents the highest price for that day and the lowest tip representing the lowest. The opening price is denoted by the small horizontal line indented into the left of the vertical bar. The closing price is represented by a similar line on the right side. The picture to the right of the chart is a zoomed in version of one these bars. It is also for this reason, bar charts are also referred to as ‘OHLC’ charts standing for Open, High, Low, Close.
Bar charts are normally used for intervals of up to 24 hours. Often one colour is assigned to bars close higher than their open (also known as bull or up bars) and another colour for those that close lower than the open (also known as bear or down bars). In the sample bar chart below, green has been used for up bars and white for down bars.
Forex Candlestick Chart
The Candlestick Chart also displays the high, low, open, and close prices over a specified period of time. How it differs to the Bar Chart though is its emphasis on revealing the range between open and close prices. The bars in the candlestick chart are coloured which help to quickly visually capture this range and in turn, the general pulse of the market.
The bars in the Candlestick Chart are called the real body. The real body is coloured to quickly reveal the range (change) in price.
Having a look at the sample MT4 Candlestick Chart below, up-candlesticks are filled in with green. Up-candlestick occurs when the close price is higher than the open price. In this chart, the down-candlesticks are coloured white. Down-candlesticks are those where the close price is lower than the open price.
A ‘doji’ candle occurs when the open price is equal to the close price. A doji has no rectangular body, just a line or crosshair lines.
The thinner lines extending above and below the body are called ‘wicks’ or ‘shadows’. The tip of the upper wick represents the highest price for that period and the lowest tip of the lower wick represent the lowest price for that same period.
The next section of the guide will show you the most basic level of technical trade analysis – identifying trends.