What is a Forex chart?
Forex chart is a graphical representation that shows the historical price and volume data of a currency pair changes over time.
The horizontal x-axis of chart represents the time and the vertical y-axis shows the price.
How to Read Different Types of Forex Charts
There are different types of forex charts that you can read in a different way. Of these, Line Charts, Bar Chart, Candlestick Charts are the most popular. You can use these forex charts for your personal preference. In the below I will discuss different types of forex charts.
Line Charts is the simplest and most basic chart among all Forex charts. A line chart is a forex chart that indicates the last price for that chart period. This chart draws a line from one closing price to the next closing price.
Investors will not find much detailed information from line chart. They can find out the general price movement of a currency pair in a given period of time.
One of the advantages of a line chart is that you get a proper idea about the price trend of currency pairs and this idea helps to make the right investment decision.
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Bar Chart is a bit complicated but this chart contains more information than line chart. The bar chart lets you know about the opening and closing of currency pairs, as well as high and low prices.
The bottom part of the vertical bar shows the lowest traded price of specific currency pairs for a certain period of time. The top of the bar represents the highest traded price of specific currency pairs for a certain period of time.
Each vertical line has two small horizontal lines. The short line on the left indicates the opening price and the line on the right indicates the closing price of currency pairs for a certain period of time.
When the price of currency pairs goes up, the currency bar becomes larger and when the price of currency pairs goes down, the bar becomes shorter.
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Candlestick Charts is a bit different from bar charts. Candlestick Chart is much more effective than line charts and bar charts. Like the bar chart, the Candlestick Charts shows the value of the currency pair but it looks very organized. So it is easy to read candlestick charts.
Each candlestick represents the price movement of a certain period of time you choose. For instant, if you select a 1 hour timeframe then each candlestick on the chart will present the development of prices over a 1 hour period.
Forex traders should have knowledge of basic candle structure. Each candlestick indicates a specific timeframe. It shows high and low price ranges with a vertical line.
Although bullish and bearish candlesticks traditionally are white and black, we have shown the bullish Candlestick green and the bearish Candlestick red. This may grab readers attention.
In a bullish session the closing price of currencies pairs is greater than the opening price. In a Bearish session the opening price of pairs is greater than the closing price.
Double Top & Double Bottom
The double top looks like an M shape. It is a highly bearish technical reversal pattern which typically occurs when the price of currency pair reaches peak point two times after a small decline between the two peaks. This means that the price falls a bit once it reaches the highest peak then bounces back to the peak, and then dips again after reaching the peak for the second time.
Double Bottom is the opposite of the double top. You can see in the picture that double bottom looks like W shape. This bullish forex chart pattern occurs when the price is in a downtrend. In the double bottom session, the price reaches the lowest point and then increases slightly, after increasing slightly it starts to go down to the lowest point and then the price continues to soar.
Head and Shoulders
Head and Shoulders pattern starts with the initial peak (shoulder). When price reaches initial peak, it goes down slightly and again reaches higher peak (head). After one slight dip price will increase to initial peak (shoulder) again. Finally it will start decline and breaks the neckline which is drawn to connect the lowest points of the two troughs.
Inverse Head and Shoulders
It is the upside down of Head and Shoulders. Inverse head and shoulders have bearish nature. It has two shoulders and one head. As you can see in the picture, the price goes up a bit after reaching the initial lowest price (shoulder) and then falls again and reaches the second lowest price (Head).
From there the price rises again and then falls slightly (shoulder). After the initial shoulder price tends to rise again and breaks the neckline. The price will move the equivalent distance of the head and neckline after piercing the neckline.
Rising Wedge & Falling Wedge
This bearish pattern starts wide at the base. When prices go up it contracts and the trading range narrows. Rising Wedge can indicate either a reversal or continuation trend. During a continuation trend formation you can see the rising wedge will move up and with the prevailing trend. During a reversal trend formation you can see the rising wedge will still slope up, but the slope will be against the existing downtrend.
This bullish pattern can signify either a reversal or continuation trend. This pattern also starts wide at the top and contracts as prices move lower. During a continuation trend formation you can see the rising wedge will still slope down, but the slope will be against the prevailing uptrend. During a reversal trend formation you can see the falling wedge will move down and with the prevailing trend.
Bullish Rectangle & Bearish rectangle
If you see the support and resistance levels of the price are parallel, you can identify this as rectangle patterns. This continuation patterns appears following an uptrend. In the picture you can see that this trend temporarily bounces between two parallel levels before the trend continues. After small fluctuation this trend will start slope up.
This continuation patterns appears following a downtrend. You can see that this bearish trend temporarily bounces between two parallel levels before the trend continues. After small fluctuation this trend will begin slope down.
Symmetrical triangle is also known as a coil. This continuation pattern holds at least two lower highs and two higher lows. When the lower high and higher lows are connected, the lines shrink as they are expanded and forms symmetrical triangle shape.
Ascending triangle is also referred to as the rising triangle. It is a bullish continuation pattern that contains rising lower trendline and a flat upper trendline. When you spot this pattern you can assume the buyers are more aggressive than sellers as price continues to make higher lows.
Descending triangle is also known as falling triangle. It is a bearish pattern that is created in the downtrend and indicates the continuation of the downtrend. In the picture you are seeing that price continues to make lower highs, so it can be said that sellers are more aggressive than buyers.