Classification of charts is an extremely important thing that traders need to understand when trading in Forex. There are many types of technical charts such as candlesticks, bars, lines, etc. Each chart has its advantages and disadvantages. The article below will help you know how to distinguish and read each different type of chart. Let’s find out with Forex Trading right away.
Overview of technical charts when trading Forex
Before going into the details of different types of chart, traders need to understand what technical charts are and the purpose of using charts in Forex.
What is a technical chart?
Technical charts are visual illustrations of the buying and selling price movements of currency pairs in the Forex market. This fluctuation is displayed in many different time frames, presented as bars (Bar), lines (Line),…
When using charts in technical analysis, traders need to pay attention to the X-axis (horizontal) and Y-axis (vertical). The X-axis is used to represent the period of fluctuation. Meanwhile, the Y axis displays the price of a currency pair.
Purpose of using charts in Forex
Studying Forex charts plays an important role when traders conduct transactions. Through charts, you can identify and analyze price fluctuations in the market. This will help you make accurate investment decisions, bring high profits, and minimize risks.
By learning and using charts, investors can apply Price Action Scalping. This is the “surfing” method in trading. Traders will open and close many trades to gain many small profits during the day.
In addition, Price Action Scalping is conducted based on evaluation and analysis of price fluctuations on the chart. Specifically, traders will monitor the behavior of sellers and buyers in the trading market.
See more: Master the Forex “game” with Price action
How to classification of charts in technical analysis
Technical charts in Forex are divided into the following types: Bar charts, candlestick charts, line charts, caro charts, and market structure charts. To understand how to recognize these types of charts, you need to clearly understand the characteristics, as well as some advantages and disadvantages of each type of chart.
Line chart
Line charts are also called Line charts. This type of chart uses a line extending from the closing price in the previous period to the closing price in the next period. Traders can rely on this to generally evaluate the price movement in the market of a foreign exchange pair at a certain time.
The advantage of a Line Chart is that it presents information in a minimalist and intuitive way, eliminating distracting factors. However, this chart lacks detail. The top and bottom of the Line Chart are relatively narrow. This can lead to false signals in trading.
Candlestick chart
Candlesticks Chart is a common type of chart when trading Forex. Candlesticks originated from Japan, more than 100 years ago. In the 1700s, Homma – a Japanese man realized that, although there was a close relationship between supply and demand of rice, the market was strongly dominated by sellers.
Candlestick charts show the opening, closing, high and low prices. Each candle has a wide part, called the candle body. This represents the price range between the opening and closing prices of a day.
Candlesticks Chart displays complete price information and is quite easy to understand, can be applied according to the Price Action method and Japanese candlesticks. However, this chart also displays unimportant content that causes noise during the transaction process.
Bar chart
In the Bar Chart, each bar represents currency prices over a fixed period of time. At the same time, each bar also displays the opening price, highest price, lowest price and closing price (OHLC).
In general, bar charts display information relatively clearly, completely, and minimally. Thereby, you can easily determine the price fluctuation trend of currency pairs. But for beginner traders, it is difficult to analyze Bar Charts according to Price Action.
Classification of charts: Caro chart
The Caro chart is also known as the Caro Point and Figure Chart (abbreviated P&F). This type of chart represents market prices without considering how long the transaction period has passed. P&F charts use X or O columns to illustrate prices and do not have time columns. In particular, column X represents an increase in price, while column O represents a decrease in price.
The advantage of the Caro chart is that it provides a lot of information. Investors can rely on this to analyze market prices. However, because only columns X and column O are used, the price model, resistance, and support,… are also adjusted according to these two characters, causing noise when making transactions.
Market configuration chart
Market Profile or market configuration chart is a type of chart often used by traders when trading long-term or short-term. Market Profile shows the complete price, volume, and time period. From there, investors can see the value range and control points in the transaction.
Trading volume is shown as a horizontal graph. In particular, the longest horizontal line represents the largest trading volume. The general formula of this chart: Price + Time = Value.
Using the standalone Market Profile, traders can see price adjustments and value ranges over time. However, you will need to change the timeframe to use the chart.
See more: Discover Exness – The world’s leading Broker
Classification of charts: How to read charts that traders need to know
From the above sharing, traders can understand the most common Classification of charts. To know how to read charts accurately, don’t forget to refer to the following information about Forex Trading.
How to read Bar Chart technical charts
Each bar of the Bar Chart represents the trading range in a specific time frame. Traders need to pay attention to the following 4 positions:
- The top part of the bar illustrates the highest trading price (High) over a period of time.
- The bottom part illustrates the lowest transaction price (Low) over a period of time.
- The dash to the left of the bar represents the opening price (Open).
- The dash on the right represents the closing price (Close).
Instructions for reading Candlestick Chart Candlestick chart
Candlestick charts also display High, Low, Open, and Close levels. However, to read the Candlestick Chart accurately, you need to note the color of the candle’s body:
- Blue or white candle body: Price increases, price below is Open, price above is Close.
- Red or black candle body: Price decreases, price above is Open, price below is Close.
Read Line Chart
Line charts are quite simple, as they only include lines connecting the previous closing price to the next closing price for a specific period of time. Traders should note that the horizontal axis illustrates the volatility time frame, and the vertical axis on the right shows the closing price for each time period.
Conclude
From our sharing above, we hope readers have been informed about the Classification of charts in currency transactions, as well as updated with more useful information. To not miss the latest articles about the Forex market, don’t forget to visit the Forex Trading website.
FAQs
What are the opening and closing prices?
The opening price is understood as the first price when making currency buying and selling transactions during the day. The closing price is the final price given at the end of the day’s trading session.
Which chart should I choose for effective trading?
Besides the advantages, bar, line, and candlestick charts all have certain limitations. The choice of technical chart depends on the perspective and experience of each investor. However, candlestick charts are often chosen by many traders because they present complete, accurate information and are easy to manipulate. So, you might consider using this type of chart.
What is the Price Action method?
Price Action (also known as Price Action) is a trading method in which investors rely on analysis of market price fluctuations of currency pairs. By monitoring changes on the chart, traders can evaluate the behavior of buyers and sellers and make predictions about future price trends.
