Types of price charts
There are a wide range of charts in the forex market to show price changes over time, which are divided into three general categories: basic, intermediate, and advanced charts which are explained at the rest.
Basic charts
As the name suggests, charts in this category are the simplest possible charts. These charts are divided into 3 types of tick, line and bar charts. In tick chart, the number of trades is depicted in each time frame. For example, a 1000 tick chart shows every thousand transactions in one tick. Contrary to the fact that this type of chart is in the basic category, its interpretation is not so simple.
Another type of chart in this category is a line chart. The line chart is the most basic form to draw the price in the financial market and it can be said that it is one of the simplest types of forex charts and it is their main advantage. This is a line that connects prices to each other over time.
There is another type of basic price chart called a bar chart. The bar chart is the closest form to the most popular chart in the forex market, the candlestick chart. Unlike a line chart, a bar chart shows all price movements over a period. High, low, open and close prices play an essential role in the formation of a bar chart.
Intermediate level charts
The most important type of price chart in this category are candlestick charts. This type shows all changes and movements of the price from the opening price, the highest and the lowest price to the closing price.
Many beginners subconsciously think of Wall Street when it comes to trading the forex market. It is true that many of today’s styles of financial market analysis were founded in America. But it is interesting to know that one of the main tools of today’s technical analysis was invented centuries ago in Japan, which is the candlestick price chart, which is currently considered an inseparable element of financial market analysis.
Advanced charts
For traders looking for technical analysis in a more professional manner, there are other more advanced charts, the most important of which are: Heiken-Ashi, Renko and
point-shape charts. Experienced traders use this type of price chart to filter out false breakouts and detect incorrect market movements.
Using candlestick charts to analyze prices
As mentioned before, candlestick charts are one of the most common types of price charts that are used by most traders to conduct price studies and technical analysis.
To clarify the details of this type of price chart and how to work with it, pay attention to the image below. A candlestick consists of three parts: the body, the lower and the upper shadows. In general, we have two types of bullish and bearish candles, which often display bullish candles in blue or green and bearish candles in red.
As you can see, in the bullish candle, the opening price is lower than the closing price, which is the opposite in the bearish candle. The upper and lower shadows, respectively, represent the highest and lowest price during the formation of this candle. Since this type of price chart includes many details of price movements that most traders are looking for, it is considered one of the most widely used charts in the forex market.
How to interpret moving averages?
Moving average is usually one of the first types of indicators that a professional trader gets to know. The moving average is a chart whose points are obtained from the average prices of several time periods.
Suppose a 14-period moving average. This means that each point of the moving average chart is the result of the average price of the previous 14 periods. These prices in the last 14 periods can be the closing, opening, highest, lowest or even the average of these 4 values.
In general, there is a hypothesis in the financial markets that states when the price deviates from the average of its previous periods, it returns to its average again. This hypothesis makes average price charts used in technical analysis and sometimes they are used to find support and resistance levels. In addition, some traders use the intersection of moving averages with different periods to get entry signals.
In general, moving averages are tools that are used as the basis of many other technical analysis indicators. Of course, it should be noted that since these types of charts are calculated using average price values in the past, the signals issued are generally delayed.
Fibonacci levels in technical analysis
Fibonacci ratios are numbers that are calculated based on a mathematical sequence. This sequence was invented by the Italian mathematician Leonardo Bonacci in the 13th century.
A study of past prices in financial markets shows that price corrections are often made to certain levels that are associated with important Fibonacci ratios. This means that the price corrects the previous trend to levels that can be calculated with important Fibonacci ratios. On this occasion, many traders use these numbers to calculate the possible end of corrections. The most important ratios used in the forex market are 38.2, 61.8 and 78.6 percent.
For example, in the picture, it can be seen that in GBPNZD currency pair, after an upward movement the price returned and corrected to 61.8% of its previous movement and then continued its upward movement.
Using line charts in forex trading
Despite the fact that the use of candlestick charts is very common in Forex trading, there are still traders who use the simplest type of chart, the line chart, for their analysis. This group of traders strongly believes that complicated analysis does not necessarily lead to profit.
As mentioned, candlestick charts show the high, low, open, and close of the price over a period of time, but the line chart is the result of connecting the closing points of the price at any time. That is, at any point of the line chart, you are only able to see the location of the closing price at a particular time. Line charts have features that are mentioned below.
Simplicity of the chart
Have you ever wondered how line charts can simplify your forex trading strategy? Many traders focus on complicated candlestick and bar charts and ignore the beauty of simplicity. A professional trader removes the confusion in price chaos and focuses only on closing prices. By joining the price closing points, the chart creates a clear picture of the price movement.
Easier to detect failure levels
Many traders tend to use complex charts when spotting a breakout. However, the effectiveness of line charts in this area should not be underestimated. As these charts illuminate the main trend, spotting a break in them becomes clearer.
Line charts in different timeframes
Here’s a helpful tip: these charts are effective on different timeframes. Line charts reveal large, long-term trends and show market sentiment. A look at the line charts at different timeframes provides a broad view of the ups and downs of the market. So, this helps to understand the market behavior better.
Revealing hidden patterns
Line charts are adept at revealing patterns that may be hidden in more complex chart types. For example, the simplicity of line charts can help traders identify chart patterns such as triangles, wedges and channels. These patterns may be less obvious on candlestick or bar charts, but they can provide powerful trading signals if spotted early.
