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Forex Charts

Forex Charts: What Are They Good For?

Some forex traders live and die by the styles of certain forex charts; candlesticks have the most fevered adherents. That is understandable, because candle charts are tremendous tools.

Still, it is smart, even necessary, for the serious FX trader to be familiar with more than one type of forex chart, so that you can decide for yourself which chart type you want to use, which you don't, and when each chart style might serve your unique forex trading systems best at any given time.

This last part--the need to go beyond mere chart reading to actually making trades using charts as tools--is what separates the forex pro from the forex chump.

Therefore, let us take a look at the two main types of forex chart with an eye towards what each main type of forex chart does best.

Bar Charts Are Simple

Bar charts are effective because they're simple. The bars represent the price of a certain currency pair and look kind of like buildings standing next to each other.

You can see the high for the time period you select, the low, and you get a general idea of how this currency pair has been behaving over time. You may also see spaces between bars, this indicates that price "gapped" up or down between sessions.

Bar charts do a good job of showing you:
-- Trend direction and velocity
-- Key support and resistance levels
-- Trading ranges, both recent and historical

Bar charts are widely utilized in many fields, not just FX trading, so pretty much anyone can read one. If you are a beginner, bar charts offer a solid way to visually acquaint yourself to the price action of a currency pair that you're considering buying or selling.

Candlestick Charts Are Eloquent

The candlestick chart is similar to the bar chart but can be considered an evolutionary step beyond it. Rarely will you meet a forex pro who is not deeply enamored of candle charts.

For those who are not familiar with how candle charts work, the basics are:

The "candle" follows the price of a currency pair. It grows in either direction, either up or down indicating whether the currency pair's price is going up or down. The top and bottom of the rectangular candle represent the open and close for the time period (if it's a day chart, the time period is a day). There are also thinner "wicks" showing where price broke out in one direction or the other before receding back into the body of the candle.

Another added factor of candle charts is that the color of the candle changes. Typically, a "bullish" (ascending price) candle is white or green, and a "bearish" (descending price) candle is red or black. Color excites the human brain, especially when it has meaning, as in this case it surely does. Not only abstract meaning, too, but real dollars and sense.

The key concept with candlestick forex charts is the relativity factor. Every candle is either red or green and always relative to the candle that came before it. No candle stands alone and this is a true representation of how the forex markets work.

Forex Charts Are Nothing Without Your Help

One thing we always advise when it comes to any forex chart is for you, as a trader, to actively manage and manipulate it. Participating in creating the look and data display of a forex chart is the best way to divine actionable intelligence from these tools.

For example, whether you're using bar or candlestick charts, it is very helpful to get in the habit of going beyond merely studying the chart to drawing on it. Marking points of support and resistance, for example, is something that every good trader does immediately upon sitting down to view a forex chart.

Top notch forex charting software -- when used with high-quality forex trading software -- will allow you to trick out your charts in all sorts of fun and insightful ways. By all means it is wise to make the most of that opportunity if you want to make the most of your forex trading dollars.

Important Forex Information

The most important step in currency trading is finding the right broker; our forex experts can help. See our
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