3 Types of Forex Charts and How to Read Them

A bar chart also typically includes volume (how many shares, forex lots or futures contracts are changing hands on each bar), therefore, it is also recommended you understand buying and selling volume when reading a bar chart.

The majority of charts you will see in books, magazines, and online will be bar charts, so it pays to learn what each component means.

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What is a 'Bar Chart' Bar charts are investment charts that show the range of prices of a security across a given period of time. Technical analysts use bar charts in .

A Double Bottom - The bar chart for this case is a long drop, then a short rise, a short drop and a rise. The final rise is predicted to raise more by the investor. The shape of the chart resembles a "W". A Head-and-Shoulders Top - This bar chart has one larger top separating the two smaller tops that are similar to the double top.

The larger top is called "the head", and the two smaller tops are called "the shoulders". Head-and-Shoulders Bottom - This bar chart is the same as the previous chart only upside-down. How to Read Continuation Patterns on Bar Charts The continuation pattern indicates a certain direction that the online Forex graph follows, that is interrupted by a shot change in direction, and sonly after continues with the previous direction.

The Flag - In this bar chart continuation pattern, the change in direction of the online Forex currency consists of the same difference between the lows and the highs, and a continuing downward or upward slope of the graph. A Symmetrical Triangle - In this case in the change of direction area the line of the bar chart becomes closer as the previous direction of the chart approaches. An Ascending Triangle - This graph interruption indicates the unchanging of the high price, while the low price keeps getting closer to the high until the pattern continues.

A Descending triangle - The same as the ascending triangle only with the opposite roles, here the low price is the one that stays the same. Rectangle - This is a pattern when the high and low prices stay almost the same for some time. Gaps in the Bar Chart Gaps occur when the bar chart leaps and leaves a gap between the former price of the online Forex currency and the next price. Trudy Bates - Market Expert. Free Forex Trading Account. You can have 5-minute bars, minute bars, 1-hour bars, 4-hour bars, etc.

In Forex, the most commonly used bars are the minute, 1 and 4-hour, and daily. Be careful to seek out the time parameter of the bars on a new chart prepared by someone else. Unless a chart is labeled otherwise, you are usually safe assuming a chart is of daily bars. The open refers literally to the first price at which a trade is actually done in the period.

Usually the open is the same or very close to the previous close, but the open can be important if it is far away from the close of the previous period, and especially if the open is a gap.

We can assume that they are caused by either high market volatility or lack of liquidity at some price points. Note that we get very few opening gaps on timeframes higher than 1-minute in Forex because of near-continuous trading. The only real opportunities for significant gapping are 1 the period between the end of the Chicago futures pit session and the re-opening of the Globex session two hours later — when the spot market is not closed down during that window and 2 from the Friday close in New York to the Asian open late Sunday afternoon morning in Asia — a weekly gap.

The close is the last trade done within the timeframe you name for your bar definition. It is the most important data point on the bar because it summarizes the final sentiment of the period. Back in the first figure, you can notice that the second bar's open is at the high and the close is at the low.

Open-at-high and close-at-low is a message that something happened during the day to turn sentiment against this security. The chances are good that the following bar will contain a lower low and therefore that a short position should be considered.

In addition to the placement of the components, the size of the bar matters, too. A tiny bar small distance between high and low means a lack in interest by both buyers and sellers.

Conversely, an investor might want a one dollar 1. This would help reveal price movements that would be significant to the longer-term style of trading and investing. Trading with Range Bars Range bars can help traders view price in a "consolidated" form. Much of the noise that occurs when prices bounce back and forth between a narrow range can be reduced to a single bar or two.

This is because a new bar will not print until the full specified price range has been fulfilled. This helps traders distinguish what is actually happening to price. Because range bar charts eliminates much of the noise, they are very useful charts on which to draw trendlines. Areas of support and resistance can be emphasized through the application of horizontal trendlines; trending periods can be highlighted through the use of up-trendlines and down-trendlines.

Figure 2 shows trendlines applied to a. The horizontal trendlines easily depict trading ranges, and price moves that break through these areas are often powerful.

Typically, the more times price bounces back and forth between the range, the more powerful the move may be once price breaks through. This is considered true for touches along up-trendlines and down-trendlines: Figure 3 illustrates a price channel drawn as two parallel down-trendlines on a 1 range bar chart of Google.

Since some of the consolidating price movement is eliminated by using a larger range bar setting, traders may be able to more readily spot changes in price activity. Trendlines are a natural fit to range bar charts; with less noise, trends may be easier to detect. For more on channels, see Channeling: Charting A Path To Success. Interpreting Volatility with Range Bars Volatility refers to the degree of price movement in a trading instrument.

As markets trade in a narrow range, fewer range bars print, reflecting decreased volatility. As price begins to break out of a trading range with an increase in volatility, more range bars will print. In order for range bars to become meaningful as a measure of volatility, a trader must spend time observing a particular trading instrument with a specific range bar setting applied.