Understanding Line Graphs, Bar and Candlestick Charts in the World of Forex Trading

June 12, 2009 by  
Filed under Forex Trading

There are several options for investments today, and Forex trading is fast growing in popularity. Several tools are available for even the most advanced investor in order to research current market trends, or even learn the basics when getting started. Forex trading software and currency exchange rates are one thing, but you must also understand the basics of any type of graph or chart with just a glance to be successful in this world.

The good news is that using standard information included in these charts and graphs is usually easily accessible on any Forex online trading system. Monitoring prices and taking note of current trends can prevent any major mishaps, as well as help to determine your next proactive move.

Just as with standard market trading, line graphs can be extremely useful in the Forex market world. With a mere glance, these graphs outline current prices and historical trends with a visually recognized pattern. However, you must understand the fundamental difference between the standard and Forex markets – the definition of ‘price’ is completely different.

These Forex prices are expressed as a pair of two different currencies, for example the dollar and yen. If the yen/dollar price quote is 1.34 27/32, this means that $1.3432 will buy you one yen, and you would receive $1.3427 for each yen converted to a dollar.

The calculations used to determine the movement of these prices and convert them to a visual tool requires technical analysis using statistical techniques and historical information to determine likely directions for the future.

One of these technical tools may be an average of price calculated over a specified period of time. If you take the current price and compare it to the price one hour ago and one hour from now, you’ll be on your way to arriving at this number. The average price over 24 hours needs to be tracked every hour for 24 hours before summing them up and dividing by 24.

This average price in a day could also be implemented into a line graph. If you repeat this process for 30 days, you’ll have a line graph showing the movement of the average Forex trading price of that currency exchange, or a 30-day moving average.

Many investors use this line to determine what calls should be used in the next trades; if the price falls below it, it’s time to buy. If it rises above, it’s time to sell.

In Forex trades, it’s also possible to track a variety of other indicators such as averages within an hour or between minutes. It’s not necessary to understand the calculations involved, per se, but the differences between these separate line graphs can give an indication as to where your exchange is headed.

Bar and candlestick charts are a great way to research actual, and not average, prices over a specified period of time. It may be helpful, especially if you’re a new investor, to read an educational book or take an online course in reading and understanding the information in these charts – it will certainly pay off many times over in the future!