Welcome to Lesson 5, an Introduction to Charts. So far we have learnt quite a lot of vital things when it comes to the Forex Market, however as of yet we have not touched upon one of the most important aspects of trading, the charts.

generic_chart

The first thing to note here is that no matter what style we choose, the price information we are shown will be EXACTLY the same (with the exception of the Line Chart, which we will look at below) it is simply a case of HOW it is presented to us.

What do the charts show?

Before we can look at the different styles of chart, we must first understand what the charts actually mean, i.e. what are they showing us? The charts show us the Price Action of the specific Stock, Share, Currency Pair etc. we are looking at.

The charts are further broken down into time-frames, which could be 5 Minutes or 1 Hour even Daily, Weekly or Monthly. Each new bar or point will represent the specific time-frame you are looking at, so for example if I am looking at a 5 minute chart then each bar represents 5 minutes of Price Action. If I then switch to a Daily Chart, each bar will represent a days worth of Price Action.

What are the different chart styles?

There are three main types of chart styles:

  1. Japanese Candlesticks
  2. OHLC Bars
  3. Line Charts

Japanese Candlesticks

Japanese Candlesticks are probably the most common of all the chart styles. I would put this down to the fact that they are visually easier to analyse and read.

Below is what the Japanese Candlestick chart looks like. Straight away what really stands out is the fact that two colors are used here; RED and GREEN. Now remember what we spoke about earlier, each candle or bar represents the time-frame we are looking at. So let’s say that the chart below is a 5 Minute chart, what this means is each candle shows 5 Minutes data.

The GREEN candles indicate the market went up in those 5 Minutes, the RED candles indicate the market went down in those 5 Minutes.

generic_chart

The next thing that you will probably have noticed is that most of the candles are not just solid rectangles, but have ‘wicks’ (get it? Candle wicks), what do these mean?

Candlestick charts include several pieces of trading information, including the following:

  • Open – The first price traded during the lifetime of the candlestick
  • High – The highest price traded during the liffetime of the candlestick
  • Low – The lowest price traded during the lifetime of the candlestick
  • Close – The last price traded during the lifetime of the candlestick

So using this information let’s take a closer look at the rising candle (GREEN) and the falling candle (RED).

candlestick_breakdown

OHLC Bars

Open High Low Close Bars, essentially show the exact information that the Candlestick charts show, so I will keep this section fairly brief.

Below we see what OHLC Bars look like, again we have differing colors here shown as BLUE (When the market went up) and RED (When the market went down).

ohlc_chart

The OHLC chart includes several pieces of trading information, including the following:

  • Open – The first price traded during the lifetime of the candlestick
  • High – The highest price traded during the liffetime of the candlestick
  • Low – The lowest price traded during the lifetime of the candlestick
  • Close – The last price traded during the lifetime of the candlestick

Line Charts

The line chart differs from OHLC Bars and Candlesticks in that the line chart only shows one factor of price, this is the closing price.

Below is what a typical Line Chart looks like, we do not have the open, low and high for each new line drawn, just the close.

linechart

The Line Chart includes one piece of trading information, that is the following:

  • Close – The last price traded during the chart time-frame.

So whilst people do use the Line Chart, what it does not show is the range of each point, i.e. How price moved within the context of the time-frame.

Of these three chart styles, I use Japanese Candlestick charts. For the simple reason that they are visually clearer and easier to analyse, and so this is the chart that I would advise you to use. Now that we know a bit about the charts, i.e. they can be displayed to show different time frames, they are showing us the Price Action of the Currency Pair we are looking at, the next step is making sense of this information/Price Action and this is done by means of Analysis.

In the previous Lesson, we looked at the different ways of trading and we concluded that Fundamental Analysis and Technical Analysis were two of the main ways of trading/analysing the Market. It is for this reason, that I would like to go over both of these in more detail, as you will come to see they are vitally important to Forex Trading.

We will start with Fundamental Analysis and the importance of keeping one eye on Forex news.

See you on the next one!

Next Lesson: 6. Fundamental Analsysis


Trading CFDs, Spread Bets and Foreign Exchange carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for everyone. Ensure you fully understand the risks involved and seek independent advice if necessary.

Sign up below to join the FREE Forex Mastery Course
 
100% Privacy. We don't spam.
TradingView