The basis of technical analysis of the Forex market is the price chart. Forex market charts consist of two coordinates – the price line (the vertical axis) and the timeline (the horizontal axis).
The horizontal line of the forex market chart is divided into time intervals/timeframes. In standard charts, the following time intervals are traditionally used as a timeframe: tick (еру single quote), 1–5–15–30 minutes, 1–4 hours, day, week, month, year.
The Forex chart is formed in a certain period of time at a certain price. Therefore, in each time period of the chart, after the end of its formation, four price values are displayed graphically:
- The opening price (open) of the trading period is the price in the market at the beginning of the trading period. Since there are always two prices at the beginning of the trading period (the purchase price and the sale price), the opening price is calculated as the average between the Ask and Bid prices (Ask+Bid)/2.
- The closing price (close) of the trading period is the price in the market at the end of the trading period. The close price is usually also calculated as the average between the Ask and Bid prices (Ask+Bid)/2.
- The maximum price (high) of the trading period is the highest price prevailing during the period on the forex market (Ask is used).
- The minimum price (low) of the trading period is the lowest price prevailing during the period on the forex market (Bid is used).
Types of charts
Each trading period in such a chart is displayed as candlesticks. The design of the Japanese candlestick is simple. It contains the body of the candle and the shadow (upper and lower). The upper border of the shadow displays the maximum price level for a certain period of time and vice versa, the lower border of the shadow displays the minimum price level for a certain period. The price of opening or closing a period is formed by the boundaries of the candle body.
Types of candlesticks and graphics type candlesticks:
1. A white/blue candlestick indicates the upward movement of the price (the longer the candlestick, the greater the difference in price).
2. A black/red candlestick indicates the downward price movement (the longer the candlestick, the greater the difference in price).
3. A long lower shadow at the candle indicates a bull market (the longer the lower shadow, the more reliable the signal, and the length of the lower shadow should not be less than the body of the candlestick).
4. The long upper shadow of the candle indicates a bear market (the longer it is, the more reliable the signal, and the length of the upper shadow must be not less than the body of the candlestick).
There are many different types of candlesticks and candlestick patterns that indicate possible important events in the Forex market. And it is extremely necessary for any trader to know such types of candlesticks, since it helps to determine the state of the market, to choose the optimal time to enter a trading position (sell/buy) and exit it.
The unit of any time period is the bar, which is a graphic figure in the form of a vertical column, on which all information about the price of opening and closing, the maximum and minimum price is applied. The bar chart is often called the OHLC bar, which implies the Open, High, Low, Close bar, that is, this name defines four basic price elements of the trading period.
The bar has four price specifications:
- The maximum period price – high price
2. The minimum period price – low price
3. Bar opening price – open price
4. Bar closing price – close price
If the left dash on the bar is higher than the right dash, this means that prices at the beginning of the time period were higher than at the end of the period, that is, the market price decreased and vice versa. If the left dash on the bar is lower than the right one, then the price increased.
This type of charts is not very convenient for work in the Forex market, but, nevertheless, has its application. As a rule, for this chart, the closing prices are used or the average between the opening and closing prices.
The line chart is used when conducting technical analysis because, with its help, it is much easier to find chart patterns. However, when carrying out a technical analysis on the line chart, nothing can be said about price changes for a specific time period, since we only see a curved line. It is, for this reason, traders use line charts much less frequently.
Besides, all these types of charts can be found in the Metatrader 4 trading terminal. It’s one of the best free apps for traders on Forex with live quotes, several timeframes, a wide range of analytical tools and much more.