The price chart is one of the most important tools a forex trader can use. The forex pair trade history can be analyzed from there, where you can also define your entry and exit points.
Why use trading charts?
Trading charts provide you with the price history and pattern of a forex pair over a certain time period which can help you with predictions of future movements in prices by using currency trading platforms.
The two elements when reading charts are identifying trends and predicting deviations. First is finding out whether the price trend is moving up, down or sideways. Then you determine the future point when the trend will change.
Understanding the forex chart patterns is important for forex traders, especially for those using trend-following strategies.
Types of charts
There are three types of price charts which are the candlestick, bar and line chart:
- Line charts are simple as they provide the general sense of price movement, shown by a line, plotting the closing price every interval.
- Bar charts provide a fuller sense of price dynamics as it adds more data to the picture. Intervals are portrayed by vertical bars from the highest to lowest price. Opening and closing prices are portrayed by horizontal dashes on the side of the bar.
- Candlestick charts provides similar data to the bar chart but in distinct way. There is a vertical bar running from the opening to the closing price. These bars are usually green when prices rise and red if prices fall. The highest and lowest price achieved in this interval is represented by a vertical line.
Applying technical indicators
Technical indicators can be applied to price charts to confirm your trend reading. Technical indicators calculate specific formulas on the available price data. The formula generated data is then placed either on top of existing price charts or plotted under the main price chart as a smaller chart.
Channels and breakouts
Predicting continuations and deviations in the existing channel is what chart patterns are about. Viewing price movements allow traders to plot support and resistance levels. A channel is the area between resistance and support levels.
Changes in trend and potential opportunity for trading are searched for by breakout traders who spot points where prices break above support levels or below resistance levels.