Navigating Your Way Through Line Graphs, Bar And Candlestick Charts
For a novice, dabbling in Forex trading is like trying to find your way out of a maze comprising of a bewildering array of diagrams, charts and technical indicators. To successful navigate through this maze you need to know the basic concepts of line graphs, bar and candlestick charts.
What Are Line Graphs, Bar and Candlestick Charts?
Line Graph – The line graph is one of the most commonly used analytic tools and is seen in all the different forms of trading. Line graphs are typically employed to indicate price movements over a period of time in order to recognize emerging trends and explore opportunities.
Forex traders employ line graphs to register price movements over the course of the day and also to chart comparative price movements for weeks and months and even for years. Line graphs also help Forex traders find a moving average over a more extended period of time.
Bar Chart -A bar chart uses a more familiar format to present data. Price movements are indicated vita vertically inclined bars. Taller bars indicate a larger price variance from high to low, which means greater volatility. The high price is indicated at the top of the bar and the low price is indicated at the bottom.
A bar chart will also features small indicators to the let and the right of each bar; the opening price is indicated on the left hand side and the closing price is indicated on the right hand side.
Candlestick Chart - A candlestick chart is a slightly more advanced version of the bar chart. They are color coded to indicate gains and losses at closing and offer additional information at a glance.
White or green color is used to indicate a gain at closing time, black or red is used to indicate a loss at closing time and the shaded areas at the top as well as the bottom is used to indicate the session high and session low. The areas where there is no shading at all indicates that the price closed at exactly either the low or the high. Price volatility can be ascertained by the length of the candlestick.
Over a period of time candlesticks tend to form patterns, which help predict and detect trends and influence the trading decisions that an investor will make. Although they have quite a serious purpose, the patterns have interesting names such as the Morning Glory, the Hanging Man and the Hammer.
What Line Graphs, Bar and Candlestick Charts are used for
Forex traders typically employ line graphs, bar and candlestick charts to study trends over a wide range of trading periods. There are intra-session models that indicate daily volatility as well as weekly, monthly and annual models that offer Forex traders invaluable price perspective over different periods of time.
While it is not absolutely necessary for the average trader to grasp the mathematics underlying these line graphs, bar and candlestick charts, it is important to have a basic understanding of what they mean and how the data can be practically implemented to leverage trading.