Trading charts are an important part of Forex Trading. They are used to tell you, the trader, what is happening in the market. Without understanding and using trading charts, you will be at a disadvantage and unlikely to be successful at Forex Trading. Charts present price action in a manner that will guide you in your trading decisions. Trading charts are graphic ways of looking at prices over a period of time. They are a simple, graphical representation of the exchange rates between two currencies. It is quite clear that this is essential information for any Forex trader and will ultimately be what Forex Trading decisions are based upon.
Most Forex Trading strategies are either based on technical indicators, which use charts as their starting point, or price action based, which also rely heavily on trading charts. Using trading charts will tell you what is happening in the market so you can make trading decisions based on what trends the charts are showing you. Every chart has a specific time frame associated with it. Which timeframe you need to see depends a lot on the type and term of the trading you are doing. Charts can be from 60 minutes to a whole day to a whole month. Day traders use different charts than long term traders do but all of the charts are based on the same principles.
There are three main types of charts in Forex Trading. Bar Charts, Line Charts and Candlestick Charts. They all display the same information but in a different manner so each trader can figure out which type of chart they find easiest to interpret and understand so that it can assist them the most.
The simplest type of chart is a line chart. The buying and selling prices for a currency type are plotted on a graph. Then when the closing prices and opening prices are connected in a line, the trader can see the direction of the market for that type of currency.
Bar charts have a little bit more detail. They show the opening and closing prices as well as the highs and lows. There are vertical bars with small horizontal lines that indicate opening and closing prices. This helps a trader view the trends and patterns of the market which is an important part of any trading strategy.
Candlestick charts can help you understand the opening and closing price and the high and low prices for the time period even better than a bar chart. Depending on if the candlestick is filled or open, hollow or solid, you can use this chart to determine whether the market closed higher or lower than it opened. Candlestick charts can help you monitor the market and identify turning points. These charts are easy to read and understand with names for their patterns that are easy to remember. As a result, they are the most popular tool used in Forex today.
