Types of charts

The most used types of charts are:

1. Line chart
2. Bar chart
3. Japanese Candlestick Chart

Line charts are drawn by joining the points that indicate the closing prices for a specified interval of time.
Example (EUR/JPY, daily chart):

Forex line chart

Bar charts show not only closing prices. They show the opening price, the closing price, the maximum and the minimum value reached during a certain time period.

They are also called OHLC charts (O-Open, H-High, L-Low, C-Close).

Forex OHLC chart

Example (EUR/JPY, daily chart):

Forex bar chart

Japanese candlesticks - an easy-to-interpret type of chart used in technical analysis by stock & forex traders. There are various models and patterns with exotic names like doji, harami or marubozu which when combined with a preceding trend and other candlesticks form patterns that can help you see where the market might be headed to. The Japanese candlesticks are a good means for identifying areas of possible trend reversals.

Nonetheless, here are a few words of warning for forex traders - many of the candlestick patterns presented on the next few pages (if you follow the Next button at the bottom) are characterized with gaps and are mostly used by stock traders. As you know, in forex trading you don’t see as many gaps as you can see in the stock market. That is because trading is continuous except for the weekend and holidays, so, basically, only Monday is the day that could open with a gap up or a gap down. Therefore, if you intend to use Japanese candlestick patterns in your trading analysis, be more creative in interpreting them, and always make sure you get confirmation from indicators like MA lines, MACD, RSI, etc. and/or support/resistance lines.

As the Japanese candlestick charts contain the same information as bar charts but are much easier to interpret, we recommend them as a tool for technical analysis.

Example (EUR/JPY, daily chart):

Forex candlestick chart