Forex charts represent historical trading patterns for various currencies and are quite useful for foreign exchange trading by the various players. Since the forex market is quite vast and highly liquid, an increasing number of players have been entering it. The market which was earlier monopolized by the banks of various countries has seen the entry of several new players such as large multinational corporations, brokers, forex dealers, money managers and even private investors.
Now Forex charts are an important tool for technical analysis. These charts present the historical price movements of various currencies and are often used by investors or analysts to find some specific patterns or paths. These patterns or any abnormalities depicted by a forex chart can help an investor decide on his future course of action or strategy.
Technical analysis is an important strategy for trading in the vast and highly liquid forex market. A variety of charting options are available for technical analysts. Most of the brokers provide regular charts to the investors. Some of the commonly used forex charts are:
Line Chart – This chart is constructed by connecting the daily closing prices of the various currencies. The chart shows the general price movement of a currency pair over a period of time.
Bar Chart – This chart depicts the price performance of a currency pair. Made up of vertical bars that are set at intraday time intervals of every 30 minuets or an hour or any other pre specified time, this chart is very useful for technical analysis of a pair of currencies. Each bar in this chart has four hooks that represent the opening, closing, high and low exchange rates for a specific time interval. Bar charts are also called OHLC charts, because they indicate the Open, the High, the Low and the Close for that particular currency.
Candlestick Chart – Very similar to the Bar Chart, this chart depicts the opening, closing, high and low prices for a pair of currencies as candlesticks with a wick at the each end. When the opening rate is higher than the closing rate, the candlestick is of black or red color. Similarly when the closing rate exceeds the opening rate, the candlestick is of white or green color.
These charts are good at identifying the turning points in the movements of the various currencies and can be used to guess or predict the future movements.