Taking a Technical Approach to Forex Trading

Types of Charts

The first and most simple type of chart is a line chart (figure 1). The line chart displays closing bid prices plotted over time. The line is constructed by connecting these points over the duration of the chart. The line chart is a very simple way to view performance, but does little more than display prices. Overall the line chart is the least effective way to analyze stock or currency performance.


(Figure 1)
Other than line charts there are candle and bar charts. In those charts each bar represents a particular time period. For example on a 1 hour char each bar/candle will represent a 1 hour period and depict the opening closing the high and the low price for that particular period. Technical analysts believe that graphing this information provides key insight to future price action.

The bar chart is a more in depth method of evaluation for technical analysis, because it gives the user much more information than the line chart. Each piece of price data is displayed by a bar that is constructed with 3 parts (see figure 2). The first part is the vertical line, with the top of the line representing the high bid price of the period and the bottom of the line representing the low bid of the period. On the left of the vertical line is a horizontal dash that represents the open bid price for that period and on the right of the vertical line is another horizontal dash that represents the closing bid price for the period.


(Figure 2)
Candle stick charting is another very popular charting technique. This technique was invented by ancient Japanese rice traders and still holds high merit today among technical analysts. In candle stick charting each period is represented by a vertical bar. In most cases a filled in bar signifies a down period and a hallow bar represents an up period. In an up period there will be a hollow vertical bar with the bottom of the bar representing the open, and the top of the bar representing the close. Furthermore, there will be a vertical line coming out of the bottom and top of this bar, the line on top representing the high for the period and the line on the bottom representing the low of the period (see figure 3). If the price action for a particular time frame happened to close at the high or the low the wicks will not be depicted on the candle.


(Figure 3)