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5 Types Of Forex Trading Charts & How To Read Them For Beginners
Understanding how to read forex charts is important for every trader, regardless of their strategies, as it can help you make trading decisions.
Traders who use technical strategies, like price charts, believe that news, market sentiment, supply and demand, and other fundamental factors that move forex markets are reflected in chart patterns and graphs of market data.
Here is a closer look at the types of charts in forex trading and how to read them.
Traders who use technical strategies, like price charts, believe that news, market sentiment, supply and demand, and other fundamental factors that move forex markets are reflected in chart patterns and graphs of market data.
Here is a closer look at the types of charts in forex trading and how to read them.
The types of charts in forex trading
A chart is made up of price data and timeframes. There are three types of charts that forex users rely on for trading: line charts, bar charts, and candlestick charts. Mountain, point and figure charts are less common, but you can still select them on trading platforms like MetaTrader 4 (MT4).
All these charts have pricing data and timeframes. In most cases, the price is vertical (y-axis), while the timeframes are horizontal (x-axis). Timeframes can be seconds, minutes, hours, or days. Most forex traders rely on one and 5-minute charts for shorter-term trades and 15-minute to 1-hour charts for longer-term strategies. MT4 allows you to select any timeframe you want.
Below are the different forex trading charts and how to use them.
All these charts have pricing data and timeframes. In most cases, the price is vertical (y-axis), while the timeframes are horizontal (x-axis). Timeframes can be seconds, minutes, hours, or days. Most forex traders rely on one and 5-minute charts for shorter-term trades and 15-minute to 1-hour charts for longer-term strategies. MT4 allows you to select any timeframe you want.
Below are the different forex trading charts and how to use them.
Line charts
Line charts are the simplest visual representation of market pricing information. Prices sit on the y-axis, and time on the x-axis. The chart contains points for the price at each time interval, with a simple line connecting each point.
The data for each point typically comes from the price at the very end of the timeframe. For example, on a 5-minute chart, the point would reflect the price at the end of each 5-minute interval.
The drawback of line charts is that they do not contain any information about what happens between the 5-minute intervals. The price could rise or fall significantly within a timeframe, but the line chart would not capture that movement.
These charts are the ideal choice if you are trading shares or indices and want information about market direction.
The data for each point typically comes from the price at the very end of the timeframe. For example, on a 5-minute chart, the point would reflect the price at the end of each 5-minute interval.
The drawback of line charts is that they do not contain any information about what happens between the 5-minute intervals. The price could rise or fall significantly within a timeframe, but the line chart would not capture that movement.
These charts are the ideal choice if you are trading shares or indices and want information about market direction.
Point and figure charts
Many traders skip this chart type when learning how to analyse forex charts. However, it can provide useful insights and serve as a supplement to other chart types.
The graph has the same x and y-axis setup as line charts, but traders create “X” marks to show a rising price and “O” marks for falling prices. The chart can have multiple “Xs” and “Os” in a vertical line for each time unit. The line goes from the lowest to the highest price during the timeframe.
Traditionally, traders would use point and figure charts for one-day timeframes, meaning each line of Xs or Os would represent one day.
A point and figure chart is useful to traders looking to hand-draw charts or get basic insights about intra-day price movement.
The graph has the same x and y-axis setup as line charts, but traders create “X” marks to show a rising price and “O” marks for falling prices. The chart can have multiple “Xs” and “Os” in a vertical line for each time unit. The line goes from the lowest to the highest price during the timeframe.
Traditionally, traders would use point and figure charts for one-day timeframes, meaning each line of Xs or Os would represent one day.
A point and figure chart is useful to traders looking to hand-draw charts or get basic insights about intra-day price movement.
Mountain chart
A mountain chart is the same as a line chart, except for one important difference: the area underneath the price line is shaded a darker colour than the rest of the chart.
Some traders prefer this design because it is easier to read than a line graph. However, mountain charts aren't ideal for day trading because it does not display price action for each time unit. Many traders use it to define long-term trends, which can help analyse other charts or confirm fundamental indicators.
Some traders prefer this design because it is easier to read than a line graph. However, mountain charts aren't ideal for day trading because it does not display price action for each time unit. Many traders use it to define long-term trends, which can help analyse other charts or confirm fundamental indicators.
Bar chart
A bar chart, also known as an HLOC chart, features vertical bars. HLOC stands for high, low, open, and close. Each vertical bar represents one unit of time. The top of the bar is the high for the period, and the bottom represents the low.
Each bar also has a horizontal notch on the left and another one on the right. The one on the left side of the bar is the opening price for the period, while the one on the right is the closing price.
This extra information is important for price action trading strategies, as a combination of bars can produce a pattern that shows the market is moving in a certain direction.
For example, a long bar with both opening and closing notches near the bottom, followed by a shorter bar with progressively lower opening and closing notches, can signal a downturn. Meanwhile, several bars with the same size and similarly spaced opening and closing notches could signal that a trend will continue.
Traders often use bar charts with overlays like Bollinger Bands or moving averages, which help predict momentum. In addition to forex, these charts are popular among cryptocurrency traders.
Each bar also has a horizontal notch on the left and another one on the right. The one on the left side of the bar is the opening price for the period, while the one on the right is the closing price.
This extra information is important for price action trading strategies, as a combination of bars can produce a pattern that shows the market is moving in a certain direction.
For example, a long bar with both opening and closing notches near the bottom, followed by a shorter bar with progressively lower opening and closing notches, can signal a downturn. Meanwhile, several bars with the same size and similarly spaced opening and closing notches could signal that a trend will continue.
Traders often use bar charts with overlays like Bollinger Bands or moving averages, which help predict momentum. In addition to forex, these charts are popular among cryptocurrency traders.
Candlestick charts
Candlestick charts also provide high, low, open, and close information. Because they rely on thicker bars and colours, many traders prefer candlestick charts because they are easier to see. When people learn how to read forex chart patterns, they typically use candlesticks. Here’s why:
Candles have thicker bodies The top and bottom of the body represent the open and close. Meanwhile, the two wicks, known as “shadows” to most traders, come out of the top and bottom of the body. They represent the high and low of the time.
Candles are colour-coded White or light bodies mean that the open is lower and the close is higher, meaning the market is moving upward overall. Dark, red, or solid bodies mean that the close is lower and the open is higher, so the market is moving down for the period.
Traders look for specific patterns or candles to signal market conditions For example, a long downward-closing (dark-coloured) candle without upward or downward shadows, followed by a short candle with short shadows that opens and closes lower than the previous candle could signal a reversal in the market. A third candle that closes up (light colour) and has the same size body as the first candle can confirm this pattern.
There are dozens of candlestick patterns With a sophisticated trading platform like MetaTrader 4, you can back-test the different patterns for your chosen forex pairs and see which are the most effective and which pair the best with your chosen indicators.
Get the best forex trading charts through TMGM
TMGM offers the tools necessary to implement technical analysis strategies using forex trading charts. In addition to MT4 access, you can enjoy peace of mind thanks to our 24/7 support, lightning-fast NY4 servers, multiple liquidity providers, and access to different markets, including commodities like energies and metals.
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Frequently asked question
A forex price chart offers current and past prices and other information. For example, a line chart can show the general price direction and the closing price. Point and figure charts display high and low prices for the given period, while bar and candlestick charts provide four data points for each period: high, low, open, and close.
Finding the “best” forex chart to use will come down to personal choice. Most traders often consider the Bar chart or the Candlestick chart — the deciding factor is usually what level of depth the trader is looking for.
If a trader is looking for an all-encompassing system, they may use the Candlestick chart and learn the patterns developed in that system.
MetaTrader 4 allows traders to easily use and formulate any chart time they want with just a few clicks.
If a trader is looking for an all-encompassing system, they may use the Candlestick chart and learn the patterns developed in that system.
MetaTrader 4 allows traders to easily use and formulate any chart time they want with just a few clicks.
You can get forex charts on your trading platform. For example, forex trading charts are available for TMGM customers via MetaTrader 4. MT4 offers customisable charts. Not only can you select the type of forex chart, but you can also change timeframes, adjust colours, alter data inputs, and add additional information, such as trading volume.
Many forex patterns repeat. These price actions are visible on candlestick and bar charts. The market will sometimes act differently after displaying a particular pattern, but it may move in a specific direction more often than not. Some technical forex trading strategies are built around taking advantage of these predictable patterns while using risk management practices to limit losses when the market does not act as expected.