The Different Types of Forex Charts

Line charts are some the least used charts in all of trading. Though line charts are incredibly simple to read and understand, often they do not show enough data to make intelligible decisions. Though the use of these charts is not at all recommended, I will explain what they are and how they work so you can make your own decision.

Bar charts and OHLC charts are one step up from line charts, in that they offer more data about the price changes that happen during the bar, not just one point in time. Bar charts and OHLC are excellent, but are still one step lower than candlestick charts, which show all relevant data in graphical form and can be read more quickly, but we’ll get to candlesticks in the next tutorial

Candlestick charts are the most popularly used charts of all forex charts. Candlesticks offer all the data of bar (OHLC) charts, all in an easy to read and graphical dataset. After learning the basics of candlestick charts, you’ll be able to decipher data faster and make decisions quicker, a valuable skill in the world of forex trading.

Forex Line Charts

Line charts are some the least used charts in all of trading. Though line charts are incredibly simple to read and understand, often they do not show enough data to make intelligible decisions. Though the use of these charts is not at all recommended, I will explain what they are and how they work so you can make your own decision.

How Forex Line Charts Work

Line charts are generally calculated by using the open or close value of a currency pair, then drawing a straight line to connect the points. What this does it show a relatively smooth chart, factoring in only the values at which the currency was priced at certain times.

What The Charts Don’t Show

The worst part about forex line charts is not what they show, but what they do not. For the sake of this discussion, we’ll use a one hour line chart with each point on the chart equal to the price the currency pair opened for that hour.

Here are a few fictional values for our example currency pair, EURUSD, over a 3 hour period. For educational purposes, a value will be posted for 2:30, to show the inherent problems of a line chart.

EURUSD
1:00 value = $1.50
2:00 value = $1.4950
2:30 value = $1.47
3:00 value = $1.50

What You Don’t See In the Data

Now, when we draw the chart with the price being calculated each hour, we see very little in the price. For all we know, the price fell 50 pips to $1.4950 by 2:00 but rose back to $1.50 by 3:00. Because line charts only show the price for one point in time each hour, there is a lot of market data missing. As you can see, the price actually fell more than 300 pips to $1.47 before rebounding, but according to our line graph it only fell as low as 50 pips to $1.4950.

Only Half the Story

You see, a line chart set on a hourly timeframe will only accurately report the price of a currency once every 60 minutes. You’ll only know the price at one point during the whole trading time. This is insufficient data, and making trades based on a lack of data is a sure way to lose money. For this reason, we at ForexOnlineLearning.com suggest utilizing bar or OHLC charts, or candlestick charts as a more accurate way to trade.

Bar and OHLC Charts

Bar charts and OHLC charts are one step up from line charts, in that they offer more data about the price changes that happen during the bar, not just one point in time. Bar charts and OHLC are excellent, but are still one step lower than candlestick charts, which show all relevant data in graphical form and can be read more quickly, but we’ll get to candlesticks in the next tutorial

Bar Charts and OHLC, What Do You Mean?

Bar charts and OHLC are virtually the same. OHLC means Open, High, Low and Close, representing all the data that is shown in just one bar within the chart. A typical bar in an OHLC or Bar Chart looks like the image below:

Reading a Bar (OHLC) Chart

Just as you are reading this tutorial, bar charts are read left to right. As you can see, the stick coming off the left side of the bar is the open price, or the price at which the currency pair opened that bar. At the top of the bar is the highest price the currency pair reached during that time period, and likewise the bottom point on the line is the lowest price the currency pair hit. The right most stick coming off the bar is the price the currency pair closed that time period. As you can see, the price rose during the time period, with the open price lower than the close price, however, the price also dipped lower than the open and also, at one point, moved higher than the price at which it closed.

Bar Charts vs. Line Charts vs. Candlestick Charts

As you can see from the illustration above, there is simply no comparison between bar charts and line charts. The comparison between bar (OHLC) and candlestick charts is irrelevant, as both show the same data. However, all things considered the difference is staggering. Rather than have just one point in time reflect the overall strength or weakness of a currency pair, bar chart (OHLC) users have much more data to reflect upon before making a trade.

Candlestick Charts

Candlestick charts are the most popularly used charts of all forex charts. Candlesticks offer all the data of bar (OHLC) charts, all in an easy to read and graphical dataset. After learning the basics of candlestick charts, you’ll be able to decipher data faster and make decisions quicker, a valuable skill in the world of forex trading.

What are Candlestick Charts

Candlesticks have been in use for centuries, first created as a way to easily see the changes in price of rice on Japan commodity exchanges. The image below will give you a better idea of what candlestick charts are: