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Beginner’s Guide

How to interpret charts in Forex (bar chart, line chart, candlesticks)

INTRO

The practical use of Forex Trading involves charts – day in and day out – if you don’t love charts but still want to trade; you have absolutely no choice but to understand the depth understanding of these Charts in FX (An acronym for the word Forex)

These charts can be seen in Metatrader software and or web trader. The MT, releases newer features, every now and then. Most examples provided here are from MT5.

Charts in Forex Trading have bars or use the popular Candles as well as chart line. Each candle has the Open, and the High and Low, and Close for the timeframe you have chosen, i.e. H1 (which is hourly, in MT4/MT5)

UNDERSTANDING WHAT’S IN THE CHARTS

I wouldn’t know what colors that may satisfy your own analysis using candle charts – according to a number of a well-researched document, a lot of professionals don’t find most patterns reliable – nonetheless, I prefer beginners to familiarize themselves with candle charts.

In charts, you can use a number of timeframes to help you analyze the market. The timeframe can go from a minute all the way to a month. These time frames are designed to help you understand the market better.

REMEMBER: The trend you see on a 1-hour time frame may not be the same with a 4-hour time frame, and thus it’s very important to choose a timeframe that best works for you and also depending on your trading strategy.

On every example I will be using the 1-hour time frame to explain what’s in your ordinary chart – using the candle chart; each bar has OPEN, HIGH, LOW AND CLOSE.

THE OPEN

THE OPEN: (The initial price (The opening price) of the 1-hour time frame – each time frame has an initial price )

THE HIGH

THE HIGH: (this is the highest price of the corresponding 1 hour chart time frame – The highest price reached at the 1-hour time range.)

THE LOW

THE LOW: (this is the lowest price of the corresponding 1 hour chart time frame – The lowest price reached at the 1-hour time range.)

THE CLOSE

THE CLOSE: (The closing price) of the 1 hour time frame

 

I prefer candles – the methods and illustrations are easier than with Bars – but you may use whichever you understand better, just feel the Candles are easier, especially when trading hourly in your timeframe.

In an hour (assuming it’s your chosen time frame) you’ll see the open, the high, the low and the close. Time frames can go as low as a minute.

Notes

In even simpler terms, the chart in MT4/MT5 or any platform that your broker offers should list the following for each interval.

  • An open price
  • A low price
  • A high price
  • A close price

Clearly, an open price – is the price at the beginning of the period for the chosen interval, low price is the lowest price achieved during the period of the chosen interval, just as with the high price, it is the highest price achieved during the period of the chosen interval. The close price is the last price achieved during the period of a chosen interval.

Time intervals are as follow:

  • 1 minute
  • 5 minutes
  • 15 minutes
  • 30 Minutes
  • 60 Minutes
  • 4 hours
  • Daily
  • Weekly
  • Monthly
  • e.t.c

When you increase the time frame you will realize that the price movement will be wider. You will most likely to a clear price moment on a 1-hour chart than a 5 minutes chart.

RECOMMENDATIONS – CANDLESTICKS

Because the market has to be analyzed every now and then, what I have come to understand is that a technical analyst has a lot of observation to do. It has been said that yes, indeed you can determine support and resistance point in candlesticks.

I would recommend every trader to use candlesticks instead, as they are easier to use and figuring out where the market is headed, can be bliss when using candlesticks.

In candlesticks, the most important aspects are open and close, and candlesticks have now become popular, however, Japanese traders have been using them for centuries.

Figure 0.0.1 (Candlesticks consist of the body which will be between open and close – Blacked in if the open is above the close, and white if the close is above the open – if they are the same, the session is known as Doji, which will just show a horizontal line at that price, a shaved candle when a shadow is absent)
Bar Charts – Forex – mt4 and mt5 example

 

Bar Charts are similar to candlesticks, they are also an OHLC graphical chart  – OHLC (open, high, low, close)

Line Chart is a basic chart that shows a line indicating the last price of a currency pair selected for a period of time selected by a trader.

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