With the advancement of technology, Forex trading has become easily doable for retail traders. As long as someone has an internet connection and a computer, he can get into this business.
The first thing comes when it comes to trading is the chart. In fact, this is the most important thing that a trader needs to be acquainted with. Funny thing is knowing Forex chart is a never-ending process. This is another issue. Let us now get into 3 types of charts that are most commonly used by the traders.
These 3 types of charts are
- Line Chart
- Bar Chart
- Candle Stick Chart
Line Chart most probably the type of chart which has been used longer than other charts. It is a pretty simple presentation of the market. It is drawn by adding a simple line from one closing price to another closing price.
Let us have a look at an example here.
This is a typical Line Chart. It is actually an H4 chart. This means after every 4 hours, it produces a ‘Dot’ and all these dots are added by a line. In the end, this is what comes out what we see on the above image. As we can see this chart does not have that much to offer but it is good enough to determine a trend and draw support/resistance level.
The Bar chart is more popular over line chart since it has a bit more to offer than a line chart. It is represented by bars. Each bar shows ‘High’ and ‘Low’ as well as ‘Opening Price’ and ‘Closing Price’.
Let us have a look at a Bar chart.
In fact, it is the same chart that I showed as the Line Chart above. Can you find a difference between the two charts? First of all, it shows us the price movement’s highest high/low of a bar and the price difference between the Opening and Closing price. Such information is very handy for the traders at the time of taking an entry. There is another significant difference between Line Chart and Bar Chart, which I will show later.
Most probably the Candlestick Chart is the most popular chart among the Forex traders. It is very similar to the Bar Chart but has a bit more to offer.
Let us have a look at a Candle Stick Chart
I do not think I have to explain a lot about a Candlestick Chart as they say ‘The picture is worth a thousand words’. Each candle represents the highest high/low of the price movement as well as opening and closing price. Since the body is represented by colours, so it gets easy for the traders to understand the market’s psychology as far as a single candle is concerned.
Candlestick Chart gives us clear instruction to determine trend just like other charts do. Moreover, it offers us a clearer picture to understand an individual candle more than other charts.
Now have a look at these two charts below
Candlestick Chart’s Resistance is drawn right at the higher high of a candle’s wick (marked)
Let us flip this to the line chart.
Line chart’s resistance is far away than the Candlestick Chart’s resistance. The reason behind this is Line Chart is drawn only on the Closing Price. This makes a huge difference in someone’s trading. Breakout, Entry, Exit and Trade management are going to be very different. In fact, these would be entirely two different charts as far as trading is concerned, although they are the same chart just presentations are different.
It is entirely up to you which chart you feel comfortable with. However, considering all the benefits, most of the traders use the Candlestick Chart. Thus, using the Candlestick Chart is a ‘Trend’ in the Forex market. A Forex trader must go with the ‘Trend’.