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Home | Trading Resources | Axiory´s Trading Academy | Trading Terms | What are the Forex charts? - Different chart types explained

What are the Forex charts? - Different chart types explained

A chart in Forex is a visualization of the bid and ask price movements of the currency pairs and is represented in lines, columns, or in any other form. These price movements can be expressed in different time frames: minutes, hours, days, months, even years.
 
Currency exchange charts show the price movement this way: the x-axis (horizontal line) shows the time period - which can be anywhere from a tick data (the smallest price change of a Forex pair) to a yearly data, - and the y-axis (vertical line) shows the price of a pair.
 
The majority of Forex brokers offer these charts as a part of their platform and they become accessible after users open demo or live accounts. There are also third-party companies that offer the Forex charts for free. And the charts themselves can come in different forms: a line chart, a bar chart, or a candlestick chart.
 
Traders use Forex charts for a method called technical analysis. With it, they analyze the past price movements of their pairs and try to predict how it will behave: whether it will go up or down in the future. And since this is speculation, their predictions will sometimes be true and sometimes not.

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A Forex chart and visualization of price movements

In Forex, just like in any other market, the asset prices make a certain movement: sometimes they go up and sometimes they go down. This is the movement that the traders use to either buy or sell the currency pairs. If the price is low and is showing signs that it will soon increase, traders will tend to buy the asset, while when the price is high and is slowly decreasing, traders will sell the asset.
 
Sometimes, observing these prices and analyzing them can be difficult with tables filled with lots of numbers. To make the price movements easier to understand, traders use a visualization method called a Forex chart.


How to read Forex charts?

The FX charts, just like the ones available for other assets, make the bid and ask price movements much more apparent and easy to observe. Usually, these movements will be shown in lines, columns, or any other form. As for the time frame, the prices will be recorded against a tick (the smallest change in price), a minute, an hour, a day, or above.
 
 
All charts, be it for currencies, commodities, etc. have basically the same layout in terms of the price and time representations. The x-axis (which is the vertical line) shows the time along which the price went up or down; the y-axis (which is the horizontal line) shows the price at a certain time.

Because there is a time dimension in a chart, traders can view the prices that were quoted in the past. And since we’re reading Forex charts, this price will be an exchange rate of the currency pair. And depending on which time frame a trader chooses, the price movements will be shown in ticks, minutes, hours, days, or even years - and it is pretty easy to go from one to another by zooming in or out.


Different types of Forex charts

Almost all Forex brokers offer free charts to their clients that are included in their trading package. And when traders download MetaTrader 4, MetaTrader 5, or cTrader (trading programs), the charts will automatically be available for them. Apart from brokers and their trading software, there are also third-party charting programs like TradingView that provide currency price charts for free.
 
Now, while every chart represents a price movement in a certain time period, whether it’s in Forex, stocks, or in any other market, there are various Forex chart types that have different visualization methods. Namely, the most popular charts are:
 
  • Line charts
  • Bar charts
  • Candlestick charts
 
Let’s take a look at each of them.


Line charts

In Forex, a line chart is the most basic and simple price representation. Basically, it marks various price points of a certain asset on the diagram and then connects the neighboring points to each other with a continuous line.
 
Now, while line charts are very simple to understand, they’re too simple, actually. That’s because they only depict the closing prices of currency pairs. So traders who want to get more complex information like opening or highest/lowest prices, the line chart wouldn’t provide that to them.


Bar charts

Unlike the line FX chart types, bar charts are more complex and offer even more prices than the previous one. Basically, this bar represents four different prices of a currency pair in a given time period - either minutes, hours, days, or higher.
 
Here are those four prices: the top and bottom ends of the bar represent the highest and lowest prices of the asset in that time period; a short vertical line on the left shows the opening price and the same one on the right shows the closing price.


Bar charts are far more complex than line charts for obvious reasons: while the line chart represents one price, the bar chart does that for four different prices. But when it comes to the most complex chart type, even the bars aren’t enough.


Candlestick - the most popular FX market chart

That’s why there are candlestick charts that basically combine the two previous types. A candlestick chart is the most popular method for visualizing Forex price movements in a given period of time.

While bar charts only show four prices in just one time period, and line charts only show one price in a longer time frame, the candlestick chart shows four prices in a longer time frame (depending on trader’s preferences). In short, the individual bars are arranged in a given time period and they show opening/closing and high/low prices of a currency pair.

In this chart type, the space between the short vertical lines (open/close) is called the “real body” and it indicates whether a trader had a successful trade or not. If the real body is white/green, this means that the opening price was lower than the closing price and the trader sold a pair at a higher price and gained a payout. And if the real body is black/red, the opening price was higher than the closing price, which means the trader sold a pair at a lower price and lost some funds.


Trading Forex charts in technical analysis

Now that we have explained what charts are in Forex and what types are the most popular, one question remains unanswered: why do traders use Forex charts?
 
 
In trading, whether it’s Forex, stocks, commodities, or anything else, there is a method called technical analysis which is where these charts come in useful. As we have mentioned above, traders use charts to see the historical price movements of their assets and make certain conclusions.
 
Technical analysis in Forex is basically a method of reading charts and speculating, whether the price of a Forex pair will increase or decrease in the future. There are two possible scenarios that can be “read” from charts:
 
  • If the exchange rate of a pair is increasing from the left side of the chart to the right side, it means that the market is in an upward trend - it’s basically expanding and buyers are in a favorable situation;
  • If the exchange rate is declining from the left side of the chart to the right side, it means that the market is in a downward trend - it’s contracting and sellers are in an unfavorable situation.
 
These scenarios may seem very simple but usually, such trends prove to be long-term. However, that’s not to say that the live chart Forex diagrams always lead to correct conclusions and that they are always right. That’s because they are not. In some cases, the upward/downward trend may change dramatically because of a sudden occurrence on the market. That’s why we used the term “speculation” to describe this method.
 

 

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What are the charts in Forex? - Summary

Charts in Forex, just like in any other market, represent the price changes of currency pairs. Instead of complex tables with numbers depicting the prices, charts visualize the prices using lines, bars, or other methods.
 
Charts consist of two lines which depict time and price: the x-axis shows the time and the y-axis shows the price. There are three most popular charts in Forex: line, bar, and candlestick. Because of its complexity, traders mostly use candlestick charts. They represent opening/closing and highest/lowest prices in a longer time frame.
 
Traders use charts to make certain predictions about future price movements. This method is called technical analysis and as the name suggests, it analyzes the historical prices of assets. And while the predictions made using this method don’t always work out, technical analysis can still lead to usable scenarios.

FAQ on Forex trading charts

How to understand charts Forex?
Show answer
Charts in Forex represent the past price movement of a currency pair. Of course, traders can write down these prices on a sheet or in a spreadsheet, however, this method is far more burdensome because the numbers tend to be less visually expressive.
 
That’s why the charts are more often used. Understanding a chart is quite easy: the x-axis (vertical) represents the time frame, while the y-axis shows the price of an asset. Depending on which type of chart you choose, you’ll see a price movement represented in a line, a bar, or a combination of these two.
 
What are the FX charts used for?
Show answer
Charts in Forex and other markets are used for technical analysis. It is a method which traders can use to predict the future price movement of their assets. Basically, if the price pattern behaves in a certain way, traders, who use this method, believe that it’ll probably continue going in the same direction.
 
For example, if the price is increasing from the left side of the chart to the right side, they may predict that it will continue in this upward direction and therefore, decide to buy a pair until it’s not too expensive.
 
And, if the price is declining from the left side of the chart to the right side, they may deduce that it will continue declining and decide to sell the pair until it’s not too cheap.
 
What are the most popular types of Forex charts?
Show answer
There are three most popular chart types in Forex: line, bar, and candlestick. A line chart is the simplest one out of the three. It uses a simple line to represent the closing price of the currency pair in a given time frame.
 
A bar chart is more complex, however, it doesn’t have a long-term price dimension as the line chart does. The bar chart shows four different prices of a pair - highest/lowest and opening/closing - in a single horizontal line.
 
Out of all three, candlestick charts are the most complex and most commonly-used charts in Forex. That’s because they combine both the long-term time frames and four price indicators in a single chart. With it, traders can analyze the highest/lowest and the opening/closing prices of their Forex pairs in their preferred time - be it a minute, hour, day, or longer.
 

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