Chart types - Trade forex with different charts
Chart types - Trade forex with different charts
Technical Analysts usually use the price charts for operating in a range of commodity and financial markets for many years now. In the forex market, traders usually determine the exchange of a specific currency pair as it changes over time. The traders usually do this by the type of the forex chart they use.
However, different technical analysts favor to refer different chart types, which usually depend on their particular intended purposes. However, most charting software that are proposed to be used forex traders includes all or some specific chart types which are discussed in the sections followed.
The simplest definition of a Chart is that, it is a graphical explanation of currency price movements in a particular period of time. The two most important factors in a forex chart are the X & Y axis. The X axis reflects the Time whereas the Y axis reflects the Price.
There are usually 4 types of Forex Charts:
Line Chart
Bar Chart
CandleStick Chart
Point and Figure Charts
Line Chart
Line chart reflects a sequence of data points that are linked together in line. The most commonly used data is the closing price as it is considered as the vital feed in forex. Line charts is one of the essential tyoes of chart used in most of the financial studies and forex also.
Line charts are the same like tic charts. The only difference is that the line charts allows the traders to plot the action for very long time frames as every tic cannot be plotted.
If the traders are considering the line charts for technical analysis, they might plot the exchange rates from open to open or close to close, etc. They would typically do so for each of the period that they might be interested in analyzing, so as to determine the market situation from several different times frames.
Generally, this procedure helps to smoothen the price action in line charts significantly related to be seen in the tic charts, which helps the traders to better understand the market trends.
Bar Chart
Bar Chart provides detailed information when compared to the Line Chart. In not only shows the closing price but also reflects the lowest price, highest price and opening price during a particular time frame. For instance, if you are using a 5 minutes chart, it reflects all the price fluctuations during that 5 minutes.
For the forex traders, Bar Charts are one of the popular chart types that they use. These also provide significantly more information when compared to simple line charts. Bar charts are also known as Open, High, Low and Closing chart or OHLC chart.
Normally, the bar charts consist of bars or lines which pull out vertically beween the low and the high period to demonstrate the limits of the trading range for that particular time frame.
Furthermore, the bars have small vertical hashes or lines that reflect the appropriate closing price on the right and opening price on the left for each plotted period.
CandleStick Chart
Candlestick charts have the same characteristics of bar charts as they provide open, high, low, and close prices within one bar, but the main difference is the ease of interpretation purpose. We can easily interpret bullish and bearish pattern from the color of their bodies.
Opening and closing price makes up the body of the candlestick. When the opening price is lower from the closing price the body is left blank or white. When the opening price is higher from the closing price the body is filled with color (this color depends on the trading platform).
Upper shadows shows the high of the price and lower shadow shows the low of the price for the time span the trader selected in his chart.
Candlestick charts tend to exhibit a large set of well defined patterns, often with colorful Japanese names, that knowledgeable forex traders can use to forecast future exchange rate movements.
These candlestick patterns can involve one or more candles, and they usually tend to fall into the categories of bullish or bearish continuation or reversal patterns.
Point and Figure Charts
Another interest chart type is the so-called Point and Figure chart. This type of chart seems especially popular among professional forex traders who often create them by hand as they observe exchange rates move.
These special charts have the unique characteristic of focusing solely on price action. As a result, they help traders remove the sometimes distracting element of time from the plotted image and resulting analysis.
In general, moves on Point and Figure charts will be plotted in columns of X's if they are rising, or in O's if they are falling. Furthermore, each box on these charts has a certain Box Size or Point that is often defined as 30 pips for the major currencies, and only price reversals of a set size known as the Reversal Amount will be plotted.
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