3. Chart Types-Line, Bar and Candle
When viewing exchange rates on live forex charts, traders using the MetaTrader platform have three options: line charts, bar charts or candlestick charts. If you are on the MetaTrader platform, you can switch between these different chart types by selecting View-> Toolbar-> Standard Options. You can now see the box below in the toolbar at the top of the screen.
The first option is to view the chart using OHLC bars, the second option is to provide a candlestick chart, and the third option is to provide a line chart. Let's take a closer look at each of these.
The line chart connects the closing price of the period you are viewing. So when looking at the daily chart, the line connects the closing price of each trading day. This is the most basic type of chart used by traders. It is mainly used to identify big picture trends, but unlike other chart types, it doesn't offer much else.
OHLC bar chart
The OHLC bar chart shows the bar for each period the trader is looking at. So, when looking at the daily chart, each vertical bar represents the value of the transaction per day. Bar charts are unique because they offer much more than linear charts such as open, high, low, and close (OHLC) values for bars.
The dash on the left represents the market price and the dash on the right represents the market price. The highest price is the highest price the market has traded during the selected period. The lowest price of the bar is the lowest price the market has traded for the selected period.
The green bar is called the buyer bar because the closing price is higher than the market price.
The red bar is called the seller bar because the closing price is lower than the market price.
In both cases, the OHLC bar chart helps traders identify who controls the market (buyer or seller). These bars form the basis of the following chart types, called candlestick charts, the most popular type of forex chart.
Forex Candlestick Chart Example
The candlestick chart was first used by Japanese rice traders in the 18th century. It is also similar to the OHLC bar in that it offers open, high, low and close prices for a specific period. However, the candlestick chart has a box between the market price and the closing price. This is also called the 'body' of the candlestick.
Many traders know that candle stick charts are the most visually appealing when looking at live forex charts. It is also very popular as it offers a variety of price behavior patterns used by traders around the world and is detailed in the next section.
There are several time zones that can be used when viewing live forex charts. In general, the period chosen by the trader depends on the overall style, for example:
Monthly, weekly and daily forex charts are suitable for traders who maintain a long-term position or use the style of swing trading or position trading.
Forex charts of 4 hours, 1 hour and 30 minutes are suitable for traders who want to trade intraday and tend to hold their positions for hours to days.
The 15-minute, 5-minute and 1-minute forex charts are good for weekly traders and traders who hold positions for very short periods of time, such as scalpers.
When you are on the MetaTrader platform, you can switch between these different time zones by selecting View-> Toolbar-> Time Zone. You can now see the box below in the toolbar at the top of the screen.
When viewing an OHLC bar chart or candlestick chart, a new bar or candle is formed at the end of the selected period. For example, a new bar or candle is formed every 5 minutes on a 5 minute chart (M5). Twelve M5 bars or candles will be formed within one hour of trading time.
Now let's look at how to use this chart to understand the details related to how to read the forex chart and to make trade decisions about when and how traders will trade.