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Types of Charts in Forex: Line, Bar and Japanese Candlestick Charts

admin on August 21st, 2008

In forex like in many other areas of the investing world, there are mainly three ways of indicating market movements and prices: line, bar and candlestick graphs are the tools that make it easy for you to understand the behaviour of any given pair during a certain timeframe.

Line Charts: The Simplest Chart of All

Line charts are very easy to look at and to understand, but they don’t necessarily offer you as much information as the other two, as they are plotted by simply drawing a segment from one closing price to the next during a certain timeframe.

For instance, suppose you are trading EUR/USD on the H1 (one hour) chart, and that during that hour, the price goes from 1.500 to 1.530, then down to 1.480, then a little up to 1.503. The market has been extremely volatile in this hour, but you’ll only see a 3 PIP change on the chart (from 1.500 to 1.503).

The chances of something like that happening are quite low, but nonetheless the line charts are in disuse these days, because we have much better alternatives — bar and candlestick graphs. For this reason, line charts are only used in “tick charts”, which detail the price changes one PIP at a time and second by second, but are not available on all trading platforms.

Bar Graphs: Getting All the Info You Could Possibly Want

Bar graphs, although slighly more difficult to interpret, offer you more information on the trend of a currency pair during any given timeframe, as you can see in the picture below:

On the left, the horizontal hypen indicates the open price, while the right hypen indicates the closing price: the vertical exstension of the bar also instantly tells you what the high and low during that timeframe was. For maximum clarity, in a bar chart the bar to the immediate left of the one in the picture will have a closing price at the same level of the opening price of the picture shown, and the one to the immediate right will have the same opening price as the closing price of that in the picture.

Candlestick Graphs: The Same Info, in an Cooler Way

Japanese candlestick graphs present you exactly the same information as bar graphs, but in a fashion that is easier on the eyes and to interpret. See the picture below:

As you can see, the candlestick chart is simply a bar chart, with the only addition of color. A narrow rectagle is in fact drawn from the opening to the closing price, and colored accordingly — here, green stands for bearish market and white stands for bullish.

Most traders these days prefer candlesticks because it can really tell you with the glimpse of an eye how the market has been performing in the last hours or days: however, there is no reason why you shouldn’t use bar charts instead if you feel more comfortable with them.