Learn Forex - Choosing Your Chart

By J. Star

There are 3 chart types most commonly used in Forex. Each has it's advantages and disadvantages. Choose the chart types that best fits with your Forex Trading System and personality.

1. The Line Chart. A line chart simply draws a line from one closing price to the next closing price. When each line is strung to the next we get the general price movement of a currency over a specific time period. This is the simplest and least comprehensive chart type available.

Advantages: Simple, easy to read, and to the point. If your system relies solely on the closing price of a currency this type of chart may work for you.

Disadvantages: Does not show the high, low of a given period. This makes it very difficult to determine Support and Resistance levels, an important factor in most Forex trading systems.

2. The Bar Chart. This type of chart also shows the closing price while simultaneously showing the high and low of a given period. The bottom of the bar is the low while the top of the bar is the high. The left hash identifies the open while the right hash identifies the close.

Advantages: Far better in determining the actual price movement of a given currency because the bar chart shows both the high and low as well as the open and close.

Disadvantages: More difficult to read. The flurry of lines has a tendency to play tricks on your eyes.

3. Candlestick Chart. The candlestick charts show the same information as the bar chart (high, low, open, close) but in a way that is much easier to read. The candlestick includes a body, an upper shadow, and a lower shadow. The body is one color if the price has increased or another if it has decreased. The lower and upper portions of the body show the price open and close while the upper/lower shadows identify the high and low.

Advantages: Far easier to read make chart analysis quick and efficient. The Japanese have studied candlestick charts for centuries and come up with patterns that forecast price trends and changes.

Disadvantages: They require more education to understand and use.

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