FX charts are graphical depictions of an asset’s price movements over time. They are indispensable to technical analysts and traders, who study them in order to trace and identify possible trends, trend reversals and ultimately future price movements.
There are three major types of FX charts. Learning how to read and use them is vital, especially if you are an aspiring trader.
Line charts are simple and perhaps the easiest to read. That said, they provide only limited information on an asset’s price movements. Here’s an example of a line chart for EUR/USD:
As you can see, line charts basically use a simple line to trace the upward and downward movement of an asset’s price. They are formed by drawing a line from one closing price to the next, which means that these charts can only provide information about the closing price of an asset.
Bar charts are also known as OLHC charts (Open – Low – High – Close). As this suggests, they provide the following key pieces of information:
- The opening price of the asset
- The closing price of the asset
- The highest price registered in each period
- The lowest price registered in each period
The following is an example of a bar chart for EUR/USD:
Bar charts are composed of a vertical line and two smaller horizontal lines, one of which connects to the vertical line from the left and the other from the right side. Here’s an example of a price bar:
The horizontal line on the left side of the bar shows the opening price of an asset, while the horizontal line on the right side shows the closing price.
The vertical bar itself indicates the price range that the asset moved through in a specific period of time. The bottom of this vertical line represents the lowest traded price within this period, while the top of the line shows the highest point that the price reached.
Developed by Japanese rice traders in the 19th century, candlestick charts are the most popular and widely-used chart type among traders due to the amount of useful information they provide. Here’s an example of a candlestick chart for EUR/USD, and a close-up of two candlesticks:
In candlestick charts, each candlestick represents a unit of the timeframe an asset is monitored at.
Each candlestick is composed of a bar-shaped body that represents the opening and closing prices for a specific period of time and is coloured according to price movement. Though the candlestick colour schemes nowadays vary, white bodies traditionally indicate an upward price movement, with the asset closing price being higher than the opening price, while black bodies signify a downward price movement with the asset closing price being lower than its opening price.
The line-shaped wicks, or shadows, above and below the body represent the highest and lowest prices the asset reached within the specific timeframe.