Are you struggling to find trading opportunities when you use fundamental analysis? News reports and eco releases can be strong influencers of market price, but sometimes they don’t give a clear enough indication of what to trade, and more investigation is called for. Time to check the forex charts!
Some traders use indicators to make sense of price history, while others prefer to “eyeball” the situation and make their own conclusions. Either way, it comes down to technical analysis and recognizing patterns in the price history, which brings us to the topic of this article. Which forex chart type reveals more? Should you use lines, bars, or candles? Here’s a simple breakdown of those options so you can start using the one that best suits your trading style.
Line charts
Right-click on an open forex chart and you’ll see three viewing options: lines, bars, and candlesticks. Lines display a currency pair’s price history in a much cleaner way. Lines track a simple straight line between the opening price and the closing price. Anything that happens between those two points will not be visible on a line chart. Since line charts don’t show the daily highs and lows, it makes them better suited to long-term analysis offering a wider simplistic overview. If you are planning to keep an order open for more than a week, then lines give a much cleaner picture from which to base forecasts. For short-term orders that present a risk of volatility, a bar chart is much more informative.
Bar charts
Like lines, bars also show the opening and closing prices, but bars display price highs and lows. The lowest and highest levels on each bar represent the lows and highs for the selected period. To the left of the bar is the opening price, to the right is the closing price
Most traders find bars harder to read than price lines, but there are certain advantages to using bars when performing technical analysis. When setting ‘Stop Loss’ (SL) and ‘Take Profit’ (TP), it can be useful to indicate just how extreme the lows and highs are compared to the closing prices. If the bars are long, but the opening and closing prices are crammed closer to the middle, it can mean that the selected period is experiencing price volatility. Extreme highs and lows tend to prematurely trigger a tight ‘SL’ or ‘TP’ order. If you’re opening a trade for the day, check the previous candlesticks to see if the wicks were far from the open and close? Set your ‘SL’ or ‘TP’ accordingly.
Candlestick charts
Candlesticks are probably the most popular way to view forex charts. This type of chart shows the same trading information as bars, but many traders prefer the style and insist that they are easier to read.Once you can read candlestick charts, the next step is learning momentum — see our guide on How to Use the RSI Indicator in Forex Trading.
CSimilar to bars, the candlestick body shows the opening and closing prices, and the wicks that are sticking out of the top and/ or bottom represent the highs and lows of the selected period. The direction of the price for the period is shown by the color used. The most popular contrasts being green for a rise and red for a fall, but this is a completely customizable feature.
Just remember that the highs and lows never change, but the opening price on a candlestick switches place whenever the price direction changes. A rising trend opens on the bottom. A declining trend opens on the top. Candlesticks take a little getting used to, but when you do, there are dozens of patterns to watch out for that have a history of indicating rally moves or crashes.Chart reading becomes more powerful when combined with a strategy — explore Popular Forex Trading Strategies to put your skills into practice.
So which forex chart is better for forecasting?
Take a look at the three forex chart screenshots in this article. Which one seems the easiest to read or analyze? It’s really down to your own personal preference. Lines are great for a quick and easy overview, but they show much less when you’re looking at a one-minute timeframe. Consider using lines for long-term trading analysis or quick checks on how a fundamental release is affecting market prices. If you tend to open and close orders in the same day, candlesticks might be a better choice.Ready to apply what you’ve learned? Open a free Exness demo account and start practicing chart analysis with zero risk.
Test your analytical eye on the foreign exchange market
Frequently Asked Questions
Q: What is the best chart type for forex trading beginners?
Candlestick charts are the best starting point for beginners. They show open, close, high, and low prices for each period and make it easy to spot patterns and market sentiment at a glance.
Q: What is the difference between a bar chart and a candlestick chart?
Both show the same price data (open, high, low, close), but candlestick charts use colored bodies that make it much easier to quickly identify bullish or bearish candles. Most professional traders prefer candlestick charts.
Q: Which timeframe should I use when reading forex charts?
It depends on your trading style. Day traders typically use 5-minute to 1-hour charts. Swing traders prefer 4-hour or daily charts. Always check the higher timeframe first to understand the overall trend before going to a lower timeframe for entries.
Q: How do I identify a trend on a forex chart?
An uptrend consists of higher highs and higher lows. A downtrend consists of lower highs and lower lows. Use the daily chart to identify the main trend before looking for entry signals on smaller timeframes.
Q: What indicators should I add to my forex chart?
Start simple — a 50 EMA and 200 EMA for trend direction, and RSI for momentum. Avoid overloading your chart with too many indicators as this leads to confusion and conflicting signals.
Q: Where can I practice reading forex charts for free?
Open a free demo account on Exness and use MT4 or MT5 to practice reading charts with real market data and no financial risk. Open your free Exness demo account here.
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