Types of Forex Charts

Let’s take a look at the three most popular types of charts:

1. Line chart
2. Bar chart
3. Candlestick chart

Line Charts

A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.

Here is an example of a line chart for EUR/USD:

Bar Charts

A bar chart also shows closing prices, while simultaneously showing opening prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid. So, the vertical bar indicates the currency pair’s trading range as a whole. The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.

Here is an example of a bar chart for EUR/USD:

NOTE: Throughout our lessons, you will see the word “bar” in reference to a single piece of data on a chart. A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word ‘bar’ going forward, be sure to understand what time frame it is referencing.

Bar charts are also called “OHLC” charts, because they indicate the Open, the High, the Low, and the Close for that particular currency. Here’s an example of a price bar:

Open: The little horizontal line on the left is the opening price
High: The top of the vertical line defines the highest price of the time period
Low: The bottom of the vertical line defines the lowest price of the time period
Close: The little horizontal line on the right is the closing price

What Is It And How Does It Work?

The currency (foreign exchange) market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world with daily average turnover of US$1.9 trillion, and it is traded mainly through the 24 hour-a-day inter-bank currency market - the primary market for currencies.

Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs

There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency.

The other 95% is trading for profit, or what you call speculation. Investors frequently trade on information they believe to be superior and relevant, when in fact it is not and is fully discounted by the market.

Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.

Currency Symbol / Currency Pair

EUR/USD = Euro / US Dollar

GBP/USD = Pounds Sterling/ US Dollar

USD/JPY = US Dollar / Japanese Yen

USD/CHF = US Dollar / Swiss Franc

USD/CAD = US Dollar / Canadian Dollar

AUD/USD = Australian Dollar / US Dollar

NZD/USD = New Zealand Dollar / US Dollar

Etc.

In excess of 85 percent of all daily transactions involve trading of the major currencies - Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dollar.

Currencies are traded in pairs, meaning that you are really trading one currency for another. A simple way to understand this is to consider what you do when you go on foreign vacations. If you are an USA, and you plan to travel to another country, say Canada, then you might take say $10,000 USD to the bank to change it for Canadian dollars. Let’s say the exchange rate is 1.4000, then for your $10,000 USD they would give you $14,000 CAD. Now let’s say you didn’t spend the money and upon coming home you decide to change it back to USD currency. Now let’s say the exchange rate is 1.3700 (a change of 300 pips that could happen in a week), so your $14,000 CAD would convert back to $10,218.97 US. Therefore you just made $218.97, a 2.19% increase in funds.

Reading a FOREX quote may seem a bit confusing at first. However, it's really quite simple, when you see Forex quotes you will actually see two numbers. The first number is called the bid and the second number is called the offer/ask. If we use the USD/JPY as example 115.37/115.40 the first number 115.37 is the bid price and is the price traders are prepared to buy USD against the JPY. The second number 115.40 is the offer price and is the price traders are prepared to sell the USD against the JPY.

Here in USD/JPY the currency listed first (USD) is the base currency and & the value of the base currency is always 1. A quote of USD/JPY 115 means that one U.S. dollar is equal to 115 Japanese yen. When this currency quote goes up, it means the dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote increases from 115 to 117, it indicate dollar is stronger because it will now buy more yen than before.