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Types of Charts

Let's take a look at the three most popular types of charts:

1. Line chart2. Bar chart3. Candlestick chartNow, we'll explain each of the charts, and let you know what you should know about each of them.

Line Charts

A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.

Here is an example of a line chart for EUR/USD:

Directors: S. Ndlovu; S.Shezi Physical address: 3rd Floor West Palm Building, Palm Boulevard Gateway UmhlangaTel: 031 583 57200mobile: 084 415 4145 or 073 954 8150

Disclaimer: Forex trading, although liquid and profitable it also has high risks and you could lose all your money invested if you are not knowledgeable of what you are doing, like any other investments please research and ask a number of financial advisers before you make any investment or speculative decisions. Global Forex Institute will not be held accountable for any loses that can be incurred by its clients in the trading accounts, we do not have access to clients trading account and we do not provide trading advice so we cannot be held accountable for anything pertaining to our clients trading decisions. Please do not sign any documents or open any trading accounts unless you have understood and agreed to the statement above or unless you have consulted a financial expert on the matter.

Bar Charts: A bar chart is a little more complex. It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid.

The vertical bar itself indicates the currency pair's trading range as a whole.

The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.

Here is an example of a bar chart for USD/CAD:



Take note, throughout our lessons, you will see the word "bar" in reference to a single piece of data on a chart.

A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word 'bar' going forward, be sure to understand what time frame it is referencing.

Bar charts are also called "OHLC" charts, because they indicate the Open, the High, the Low, and the Close for that particular currency. Here's an example of a price bar:

Open: The little horizontal line on the left is the opening priceHigh: The top of the vertical line defines the highest price of the time periodLow: The bottom of the vertical line defines the lowest price



of the time periodClose: The little horizontal line on the right is the closing price

Candlesticks Charts: Candlestick chart show the same information as a bar chart,

but in a prettier, graphic format.

Candlestick bars still indicate the high-to-low range with a vertical line.

However, in candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or coloured in, then the currency closed lower than it opened.

In the following example, the 'filled colour is black. For our 'filled' blocks, the top of the block is the opening price, and the bottom of the block is the closing price. If the closing price is higher than the opening price, then the block in the middle will be "white" or hollow or unfilled.



Here at wealthfx.co.co.za, we don't like to use the traditional black and white candlesticks. They just look so unappealing. And since we spend so much time looking at charts, we feel it's easier to look at a chart that's coloured.

A colour television is much better than a black and white television, so why not splash some colour in those candlestick charts?

We simply substituted green instead of white, and red instead of black. This means that if the price closed higher than it opened, the candlestick would be green.

If the price closed lower than it opened, the candlestick would be Directors: S. Ndlovu; S.Shezi Physical address: 3rd Floor West Palm Building, Palm Boulevard Gateway UmhlangaTel: 031 583 57200mobile: 084 415 4145 or 073 954 8150


red.

In our later lessons, you will see how using green and red candles will allow you to "see" things on the charts much faster, such as uptrend/downtrends and possible reversal points.

For now, just remember that we use red and green candlesticks instead of black and white and we will be using these colors from now on.

Check out these candlesticks...wealthfx.co.za style

Here is an example of a candlestick chart for GBP/USD. Isn't it pretty?Directors: S. Ndlovu; S.Shezi Physical address: 3rd Floor West Palm Building, Palm Boulevard Gateway UmhlangaTel: 031 583 57200mobile: 084 415 4145 or 073 954 8150


The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same information appears on an OHLC bar chart. The advantages of candlestick charting are:

1. Candlesticks are easy to interpret, and are a good place for beginners to start figuring out chart analysis.

2. Candlesticks are easy to use! Your eyes adapt almost immediately to the information in the bar notation. Plus, research shows that visuals help in studying, it might help with trading as well!

3. Candlesticks and candlestick patterns have cool names such as the shooting star, which helps you to remember what the



pattern means.

4. Candlesticks are good at identifying marketing turning points - reversals from an uptrend to a downtrend or a downtrend to an uptrend. You will learn more about this later.

Now that you know why candlesticks are so cool, it's time to let you know that we will be using candlestick charts for most, if not all of chart examples on this site.

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Basic Candlestick Patterns

Spinning Tops

Candlesticks with a long upper shadow, long lower shadow and small real bodies are

called spinning tops. The colour of the real body is not very important.

The pattern indicates the indecision between the buyers and sellers.



The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand.

Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand, and the result was a standoff.

If a spinning top forms during an uptrend, this usually means there aren't many buyers left and a possible reversal in direction could occur.

If a spinning top forms during a downtrend, this usually means there aren't many sellers left and a possible reversal in direction could occur.

Marubozu

. Marubozu means there are no shadows from the bodies. Depending on whether the candlestick's body is filled or hollow, the high and low are the same as its open or close. Check out the two types of Marubozus in the picture below.



A White Marubozu contains a long white body with no shadows. The open price equals the low price and the close price equals the high price. This is a very bullish candle as it shows that buyers were in control the entire session. It usually becomes the first part of a bullish continuation or a bullish reversal pattern.A Black Marubozu contains a long black body with no shadows. The open equals the high and the close equals the low. This is a very bearish candle as it shows that sellers controlled the price action the entire session. It usually implies bearish continuation or bearish reversal.

DojiDoji candlesticks have the same open and close price or at least their bodies are extremely short. A doji should have a very small body that appears as a thin line.



Doji candles suggest indecision or a struggle for turf positioning between buyers and sellers. Prices move above and below the open price during the session, but close at or very near the open price.Neither buyers nor sellers were able to gain control and the result was essentially a draw.There are four special types of Doji candlesticks. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. The word "Doji" refers to both the singular and plural form.

When a Doji forms on your chart, pay special attention to the preceding candlesticks.If a Doji forms after a series of candlesticks with long hollow bodies (like White Marubozus), the Doji signals that the buyers are becoming exhausted and weakening. In order for price to continue rising, more buyers are needed but there aren't anymore! Sellers are licking their chops and are looking to come in and drive the price back down.



If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weak. In order for price to continue falling, more sellers are needed but sellers are all tapped out! Buyers are foaming in the mouth for a chance to get in cheap.

While the decline is sputtering due to lack of new sellers, further buying strength is required to confirm any reversal. Look for a white candlestick to close above the long black candlestick's open.



In the next following sections, we will take a look at specific candlestick formations and what they are telling us. Hopefully, by the end of this lesson on candlesticks, you would know how to recognize candlestick patterns and make sound trading decisions based on them.

TrendsA trend is the direction in which the overall market is moving towards, to determine a trend you have to just look at the charts and see where the overall market is going. There are 3 types of trends.

Uptrend

There is an uptrend, well an uptrend means that there are more buyers than sellers and all the buyers are pushing the price of that particular currency up, because trading is about supply and demand if there are more buyers than sellers then the price will go up, in this case its due to demand (there are more buyers than they are sellers), demand pushes the price up.



Down-Trend

A Down-Trend is the direct opposite of an uptrend, downtrend is when they are more sellers than buyers and the sellers are pushing price down, whilst they are doing this the price will keep declining and form a downtrend on the charts, remember that the charts represents the current and historical price of that currency, so when there is more sellers than buyers, this causes price to go down

therefore forming a downtrend.

Range Bound



A range bound market doesn’t trend, this is a sideways market, this is when both the buyers(Bulls) and the sellers(Bears) are fighting for dominance and none of them are overpowering the other, this is when we have an equal amount of buyers and sellers and instead of the market trending, it tends to go sideways without any proper direction, its relatively flat.

Trend Lines

Trend lines are drawn to determine the direction of the trend, so for an uptrend we will draw a line under (below) the trend and for a downtrend we will draw a line on-top(above) of the trend, but for a sideways market we will draw the line both above and below the trend, these lines are called support and resistance lines.

Support



The support is the line under the trend and in most cases it indicates an uptrend, it’s called the support because it appears as if its supporting the overall chart up.

The resistance is the line above the chart that indicates a downtrend

Support and Resistance: Support and resistance is one of the most widely used concepts in trading. Strangely enough, everyone seems to have their own idea on how you should



measure support and resistance.

Look at the diagram above. As you can see, this zigzag pattern is making its way up (bull market). When the market moves up and then pulls back, the highest point reached before it pulled back is now resistance.

As the market continues up again, the lowest point reached before it started back is now support. In this way resistance and support are continually formed as the market oscillates over time. The reverse is true for the downtrend.

Plotting Support and Resistance

One thing to remember is that support and resistance levels are not exact numbers.



Often times you will see a support or resistance level that appears broken, but soon you after find out that the market was just testing it. With candlestick charts, these "tests" of support and resistance are usually represented by the candlestick shadows.

Remember, money management is very simple to master, but not as simple to keep

up. Once you’ve developed the money management system that works for you,

make sure to stick to it and don’t let your emotions get in the way of lomg term profit,

even if it means absorbing short term losses.

Now that you’re equippt for trading, take your time and start practicing your trading

skills.



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