How to Make Money in Forex (part 3)

Reading Charts

There are three types of charts used trader at brokerage platform, the line charts, bar charts and candlestick charts.

Line Charts

Line Charts is created by connecting the closing price on a particular time frame. With a simple line, the trend of the price of a particular currency can be seen. Line charts can be applied to all currency pairs, in whole timeframe. As a trader, it is important to select a time frame that is convenient for you. Short time frame can help you see trends minor to obtain a quick profit, while the long time frame can help you align yourself with the dominant trend.

Simplicity line graph has one weakness, which accounted for all of the lines only closing price, the trader can not see any drastic movement before the close of the period. Therefore, traders are not able to use an important market information to help decision making.

The following picture is a chart for the USD / JPY using 5 minutes time frame :

The following picture is a chart for the USD / JPY using1 hour time frame:

Bar Charts

Bar charts provide information that is little more than a line chart for this chart notes the opening, high, low, and closing market price for the currency pair. Unlike a line chart, which gives the data only at a point in time, bar charts offer more data on price changes during the selected time frame. Bar charts are sometimes referred to as an OHLC chart, as it displays to the opening price, high, low, and closing.

OHLC is open high low close:

Open: The horizontal line on the left is the opening price of the currency pair at the selected time period.

High: The highest point of the vertical line is the highest price of the currency pair at that time period.

Low: The lowest point of the vertical line is the lowest price of a currency pair at that time period.

Close: The horizontal line on the right is the closing price of a currency pair at that time period.

As shown below:

The following picture is a chart for the AUD/USD using 1 hour time frame:

The following picture is a chart for the AUD/USD using 4 hour time frame:

Candlestick Charts

Candlestick charts are created by the Japanese in the 1700s to study the movement of the price of rice in the Japanese commodity exchanges. Candlestick charts show the same information as a bar charts, but the visuals are more interesting.

Bul and Bear Candlestick

How to read a candlestick chart OHLC is same as bar charts.

Candlestick considered bullish if the closing price is higher than the opening price. Candlestick is considered bearish if the closing price is lower than the opening price. In the picture above, the candlestick is located on the left is considered bullish and  at the right  is considered bearish.

Real body of the candlestick shows the range between the opening price and closing price for a certain time frame. Real body can be long, can be short.

Wick, above and below the candlestick shows the highest and lowest price reached in a specific time frame. Wick can be long, can be short.

For example, the following figure shows a bullish candlestick on the timeframe 1 hour (H1) for the currency pair GBP / USD. Assuming the candle began to form at 11 o'clock: At 11am the price of GBP / USD 1.4250, then at 12 noon the price of GBP / USD closed higher with the price 1.4300. In a one-hour period, prices fluctuate in order to reach the highest price is 1.4375 and 1.4195 is the lowest price. See the following picture:

Bullish Candlestick

The second example, the following figure shows a bearish candlestick on the 4-hour timeframe (H4) for the currency pair EUR / USD. Assuming candlle began to form at 1 pm: At one o'clock the price of EUR / USD 1.2455, then at 5 pm the price of EUR / USD closed lower  price 1.2300. In a period of four hours, prices fluctuate, so that reach the highest price 1.2490 and lowest price 1.2275. See the following picture:

Bearish Candlestick

Okay, next post is about Market Structure.