Types of Forex Charts

Whenever a Forex chart is being discussed, it means that technical analysis is part of the trading decision. Technical analysis is widespread among traders, and is used to forecast future prices based on previous patterns. There’s more about technical analysis to be found in our next article, but for now in this one, I would like to present the different types of Forex charts that exist, their advantages and disadvantages, and what the most popular ones are. The Forex market is ruled by the general supply and demand balance. If there are more sellers (in volume) at any one level, the market will move to the downside; whereas if the volume of buyers is larger at a specific level, the prices for that respective currency pair will rise. It is as simple as that, and this general supply and demand balance influences the way any financial product moves. To find out where these supply and demand levels are, or where price is hesitating, or whether the price is accumulating energy to continue the previous trend, technical charts are used. These charts are not suitable for all trading strategies, as some are simply of no use in specific interpretations. For example, if one uses a bar chart when counting waves under the Elliott Waves principle, they will soon find out that it is a bad idea.

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Most Popular Forex Charts

The MetaTrader offers by default three types of Forex charts: bar chart, candlesticks chart, and line chart. The tabs to choose the type of the chart are visible and intuitive, and with a simple click, the desired option can be chosen.
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The image above marks with a black rectangle where the three types of Forex charts are on the MetaTrader. In this case the one in the middle, the candlesticks chart, is the one that is selected.

Candlesticks Charts

Candlesticks charts are the favourite way of looking at the moves a currency pair makes. They are so popular because of the Japanese candlestick techniques now famous around the world. Traders use these techniques to spot reversal patterns and continuation patterns, to see when and if a trend is losing its strength, and, in general, to place a stop loss and a take profit on the trade. Japanese candlestick techniques are going to be treated here later in our project in greater detail. For now, just remember that the most popular ones are the hammer and hanging man, the bullish and bearish engulfing, the piercing and the dark-cloud cover patterns, the Doji candle, and many more. The only way to interpret them is by using a candlestick chart. Below you see what a regular candlestick chart looks like. It has an opening and closing price, a green body, and a shadow.
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Depending on the type of the candlesticks that keep forming, traders get an idea whether the trend is going to continue or whether a reversal pattern is going to appear. This is enough to trigger the decision to stay in the trend, or to close it and reverse the initial position. Candlestick charts are used with major technical analysis theories, such as the Elliott Waves theory, Gartley, and even when trading with basic Fibonacci retracement levels. It is when measuring the start and end of a move that this type of chart makes the difference. In the example illustrated above, the timeframe is the hourly chart. This means that every candle represents 1 hour, so in a timeframe of 24 hours, there are 24 candles to open and close. Things get a bit more complicated the longer the timeframe becomes. On the monthly chart, 24 candles represent 2 years, so a reversal pattern forming on a monthly chart might signal a major top or bottom for the period ahead.

Bar Charts

Another type of Forex chart offered by MetaTrader is the so-called bar chart. This is the first option out of the three available. In a way, a bar chart is somewhat similar to a candlestick chart, only that candlestick techniques cannot be used here. What I did in the image below was simply to click on the Bar Chart tab while keeping the same conditions from the previous candlesticks chart. The result can be seen below. Look where the previous candlestick was, and you can see that things are not that different.
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We still have the low of the bar, its opening and closing levels, and the distance travelled. However, we cannot benefit from the essence of the candlestick techniques by using a bar chart. Nevertheless, many traders prefer this kind of chart because of its simplicity. It takes up less space as well, and this means that there are more bars that fit onto a screen than with candlesticks.

Line Charts

Using the same chart and picking the Line Chart option, the outcome can be seen below. What would you do with this kind of chart?
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The right answer is, not much. Look where the candlestick from the first candlesticks chart used to be. If on the candlesticks chart it shows a potential bullish engulfing that was eventually confirmed by the move the market made following the close of the candle, in this case there is little information that the chart provides. This is the main reason why line charts have little or no use, and traders simply ignore them. These three types of charts are the ones offered by the MetaTrader, and as mentioned earlier in this article, the candlesticks one is by far the most preferred. It doesn’t mean that the other ones are ignored; just that they are not as popular.

These are not the only type of charts that can be used, though. Depending on the strategy and technique used to analyse markets, there are other types of charts that can be imported onto the MetaTrader platform, or are offered by other trading platforms. Such charts are, for example, the Renko chart and the Point and Figure chart. Both belong to two separate trading theories, and when using them the price action and interpretation is subject to different rules than when looking at a classical bar or candlesticks chart. At the end of the day, regardless of which type of a chart one uses, what matters is to be right in the trading decision and to make a profit. It is not possible to have only profitable trades, but it is important to have a strategy that allows the account the grow. One may have a bad period due to various factors, but if the analysis is right, profits can be made. The type of  chart used is only one of the many successful tools traders use to analyse and interpret the currency market.

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