2.18 Important Chart Types - Which is the Best?  


Charts are our road maps for traversing the FX market. At a glance we can see how the fight between the bulls and bears played out. Since so much of the market psychology is reflected in charts, we can use them profitably to try and make informed guesses about what might happen in the pair in the future.


There are three kinds of charts which are the most popular:


  1. Line chart

  3. Bar chart

  5. Candlestick chart


Line charts


Line charts are constructed by simply joining one day’s closing price to the next day’s price and plotting them on a chart which displays the price levels on the vertical Y-axis and the time or date on the horizontal X-axis. See the example below:

Forex line charts - the simplest charts 


On a line chart we get no information of opening, high of the day or the low price of the day.


Bar Charts


A bar chart is constructed by plotting a series of bars, with each bar representing the trading action of one trading session. As in line charts, price is plotted on the Y-axis and the time or date on the X-axis. This is what it looks like.

Forex bar charts with open, close and high low price points 


Each bar looks as shown in the following illustration, and gives us price information about the trading session as indicated.

 The price points of a bar in a bar chart.

Bar charts are also known as ‘OHLC’ charts, with the letters standing for Open, High, Low and Close.


Candlestick Charts


Candlestick charts also provide us the same information as a bar chart. As in the case of a price bar, a candlestick too represents the price action during a single trading session. In the diagram below there’s a comparison of a candlestick with a bar.

Price points of the bars of candlestick chart. 

As you can see, the open and close levels in the bar are represented by a ‘real body’ in the candlestick. The high of the day is shown by drawing a ‘wick’ or ‘shadow’ from the real body up to the highest price of the day. Similarly, the low of the day is shown by drawing another shadow from the real body down to the low price of the day.


A candlestick is a visually more powerful method of showing the price mechanics. This is because it uses color to show up periods and down periods. Usually, an up period would be represented by a white or unfilled candle as in the lower left in the above diagram. In contrast, a down period would have its body filled with a black or other color.


Here’s an example of a candlestick chart. Here the green candlesticks represent up days and the red ones, the down days. Notice how the tussle between the bulls and bear stands out – the series of green bars show how bulls took control and the red candles show the strike back by the bears.

Forex candlestick charts offer the best visual study. 


Because candlestick charts are so visually rich and convey so much information about the current trend, areas of support and resistance and reversal points, they have become the chart of choice for users worldwide. In the chapters that follow, we would be using candlestick charts.


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