Forex Trading Charts and Technical Analysis

If you've shown an interest in Forex Trading, you would know by now that it has something to do with bars and charts and graphs. This is also probably why you're considering giving up on your forex trading ambitions. While understanding these bars and charts is important, it is not very difficult. Sure, like all things they need persistence and patience, but they're definitely not rocket science.

Forex Trading Strategy Charts and Bars

Reading graphs and charts is a part of Forex Trading called 'Technical Analysis'. It is one of the strategies traders use to predict which way (up or down) a currency pair will move so they know whether to sell or buy. A chart is usually in the form of a graph, which shows the closing price of a currency pair over a period of time, let's say a year, a month, a week or just 24 hours.

There are 3 popular charts used by traders:

Line Chart

This is a simple chart which shows the movement of a currency pair from one closing price to another. It could be a daily chart – showing closing price from the previous day to the next day, or a monthly chart – showing closing prices and movement in between from one month to another. The movement is shown by means of a line. The idea is to notice whether the line has been going up, down or is relatively stable, and between what ranges.

Bar Chart

A bar chart tracks closing prices along with opening prices and the highest and lowest for a period of time (hour, day, week). In a bar chart, the 'line' is actually made up of small vertical bars, each representing a time period (day or hour). The bottom of the bar shows the lowest price while the top shows the highest price paid. There is a horizontal hash on the left side of the bar denoting the opening price and a similar on the right denoting closing price. Traders use this chart to get a more sound understanding of what the currency pair actually looks like.

Candlestick Chart

Takes the bar chart one step ahead, and makes analysing simpler. It is exactly like the bar chart, save that the 'bars' are either coloured or blank. A coloured or dark bar denotes that the closing price for the currency was lower than the opening price – taking a lot of math out of reading charts.

While charts have their importance, it is also important to use them in the light of political, financial and other information available on a particular economy. Relying on charts alone is not a smart trader's choice.

Below you'll find a simplified Technical Analysis tool from AvaFX. You can pick Line, Bar or Candlestick chart view from the "View" drop down menu located at the bottom right corner in the tool below.