Thursday, 3 March 2011

Understanding Forex Charts and Interpreting Them

The key to performing nicely and successfully in the Forex Market is to have a clear understanding about what are the different types of charts and graphs that are used while analyzing trades. Most of the people do not understand or have very little knowledge about how to interpret these charts and graphs to know about the current situation of the Forex Market. Let us understand how to interpret these graphs so that you do not lose your hard earned money.
Let us start with what are the different types of charts that are used in Forex trading. There are basically three popular types of charts that are used. These are:
  • Line Chart: A line chart consists of a simple line that is drawn from one closing price to the next closing price. When a line chart is drawn that shows closing prices for several intervals of time then we can see the general price change of a currency pair over a certain period of time.
  • Bar Chart: A bar chart is a bit different than a line chart. Apart from showing the closing price a bar chart also shows the opening price and also the rise or fall in the value of the currency pair. The variation in the price is shown with respect to time. The y axis shows that range in which the value lies and the x axis denotes the time frame over which the value has been recorded. A bar chart is also known as OHLC chart as it denotes the open price, highest price reached, lowest price recorded and the closing price.
  • Candlestick Chart: The information denoted by a candlestick chart is same as that denoted by a bar chart, the only difference being that it is graphically better than a bar chart. Generally candlestick charts are filled with green and red colored candles denoting rise or fall in the value of a currency pair.
Analyzing charts is also known as technical analysis of the forex market and this can be used to find out the variation in the value of a currency pair. Thus interpreting charts and graphs can help you in understanding the market situation clearly and aid you in your investment decisions.
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