The modern foreign exchange market dates back to the 1970s, and today it offers a huge trading volume that exceeds trillions of dollars. It represents the largest asset class in the world with high liquidity, but it also provides 24 hours of continuous operations except for weekends.
From commercial companies to central banks, there is a variety of market participants, and for a beginner, it could very well overwhelm them. However, this is where Forex charts can help them sort viable information.
According to a recent study by Tokenist, the BIS (Bank for International Settlements) triennial survey of 2019 reported an incredible volume of $6.6 trillion per day as of April 2019. Furthermore, the entire global Forex trading market’s worth is estimated to be approximately $2.4 quadrillion.
That is around $2,409 trillion. In 2019, the global GDP was amounted to be roughly $142 trillion. The annual turnover of the Forex market is around 17 times larger. Over 170 currencies are traded on the global Forex market.
In light of this information, let’s take a quick look at the top five Forex charts that can help you make the right decisions.
1. Bar Charts
A Forex Bar Chart is a graphical chart used for recording prices in the financial markets. It is an OHLC (open high, low close) graph.
Each tick on the chart offers you information relating to the open price (left line on the tick), high price (uppermost reach of the tick), low price (lowermost reach of the tick), and last price (right sideline on the tick).
In short, the bar chart shows the opening and closing prices as well as the highs and lows. Hence you can use the bar chart as a trader to see the price range for each period. Using the image, we can read the bar chart in the following manner:
- The bar chart is for Euro/US Dollar
- On the 8th of November 2018, EUR/USD opened at 1.13711
- The same day the closing for EUR/USD was at 1.13225
- The highest price EUR/USD achieved that day was 1.13750
- The lowest price EUR/USD for the day was 1.13115
It is important to note here that as price fluctuations become increasingly volatile, the bar becomes longer. On the other hand, if fluctuations become quieter, the bar becomes smaller.
2. Candlestick Charts
The Forex Candlestick Chart is, in fact, a variation of the aforementioned bar chart. Not only does it show that same price information as a bar chart, but it also does in a much prettier manner, adopting a graphical format. Many traders prefer this chart as it makes it easy to read as well.
The Candlestick Chart follows the same vertical line format that indicates the high and low range. The body, however, in the middle indicates the opening and closing prices. If the body is colored or black, then the closing price was lower than the opening price.
On the other hand, if the body is white or hollow, the closing price was higher than the opening price.
Over here, it is important to understand the terms “bearish” and “bullish”. Both of these terms represent market sentiment, which is also known as investor attention. In general, they are considered the prevailing attitudes of investors to anticipate price development in the market.
- Bullish – this is when investors expect upward price movement.
- Bearish – this is when investors expect downward price movement.
- Doji – the name of the session on a Candlestick Chart where the opening and closing price are virtually equal.
3. Heiken – Ashi
The term Heiken-Ashi is known as the “average bar” in Japanese. The Heiken-Ashi is often used in conjunctions with Candlestick Charts to help spot market trends and predict future prices. Hence you can use the Heiken-Ashi to look for emerging new trends or for the reversal of already existing trends.
Here the green-colored candlesticks indicate an upward trend while the red colored candlesticks indicate a downward trend. By using a Heiken-Ashi chart, you can draw the following conclusions:
- Green candlesticks with no lower shadow or wick indicate a strong upward trend.
- Candlesticks with small bodies and showing upper as well as lower shadows indicate a possible trend reversal.
- Red candlesticks signal a downward trend.
- Red candlesticks with no upper shadow or wick indicate a strong downward trend.
Students who buy dissertation online UK and are into Forex trading may find the Heiken-Ashi as much needed improvement over the Candlestick Charts.
4. Line Charts
The Forex Line Charts are perhaps one of the simplest on this list to read and follow, making them great for beginners. It is a simple line chart that draws a line from one closing price to the next closing price. Therefore, the line can show you the general price movement of a currency pair over a period of time.
However, one of the biggest drawbacks of using a line chart is that it doesn’t provide you with any useful information regarding the behavior of trade in-between two points.
All that we can drive from them is only the closing price, and therefore it leaves you clueless as to any other actions or inferences happening during the period of two closing prices.
Nevertheless, it can be looked upon as a general summary or an overview that can help traders see trends in a more fabricated manner. However, you may have to use other graphs or charts to help you make a more informed decision for in-depth information.
Hence it would be best if you considered using Line Charts only to see the “bigger picture” and how the price moves in a generalized view. This is also because by paying attention only to the closing level, all other price fluctuations and market forces during the trading sessions are ignored.
5. Tick Charts
The Forex Tick Charts showcase the change in the price of a Forex pair caused by a single trade. They show momentum and strength in a much better way than time-based bars and allowing you to anticipate big moves. Furthermore, if little trade happens then, it can result in a much cleaner chart.
However, you can set the bars of a tick chart according to your preferences. Hence for a 1000 tick chart, a single bar can represent 1000 trades of any size. Tick charts are useful for swing traders and scalpers. You can use short-term tick charts to find good entries.
Forex trader’s life can become tough if you don’t rely on credible resources at your disposal. The aforementioned charts are only some of the very few that can help you accomplish a certain edge over the market. Using them can help you understand the inner workings of commerce related to your field and line of work.
It is crucial, however, that you make informed decisions before further investing or diluting your capital. Therefore using multiple charts to help you make the right decision is the way to go. That’s it for now. Cheers, and all the best for your future endeavors!
Stella Lincoln currently works as the Assistant Editor at Assignment Assistance and Crowd Writer. She is quite fond of indulging herself in pop-culture, including anime, movies, music, and video games. During her free time, she likes to doodle, create wall art, and practice mindful yoga.