There are different types of charts used in technical analysis of the FX market. Some of the most common ones include line, bar, and candlestick charts. Charts are used by the trader to conduct technical analysis and make market decisions. They are built in two coordinates: price and/or tick volume and time period (horizontal). Some kind of data is used for building charts (except tick ones):
Open price – price,* which is formed in the beginning of the trading period;
Close price – price,* which is formed at the end of the trading period;
High price – the highest price* of the trading period;
Low price – the lowest price* of the trading period.
The trading period of timeframe is called the period of time, which is used for chart building. If you have this information, it is grouped and given in a graphical form. There is an opportunity to use such timeframes: 1 minute, 5 minutes, 15 minutes, 1 hour, 4 hours, 1 day, 1 week and 1 month on the Metatrader 4 trading platform. There are several ways of chart building, but their aim is the same, that is to show information in an easy way at any time.
Candlestick is made up of two separate parts, the body and the shadows. The top and bottom of the body show the open and closing prices for the time period being considered. The top and bottom of the shadows show the high and low prices for the period. The body is filled based on the opening and closing prices of the period. If the closing price is lower than the opening price then the body will be filled in. If the closing price is higher than the opening price then the body won’t be filled in. Filled in candlesticks means the price is declining, open candlesticks means the price is increasing.
There are three main parts to a candlestick:
Upper Shadow: The vertical line between the high of the day and the close (bullish candle) or open (bearish candle)
Real Body: The difference between the open and close; colored portion of the candlestick
Lower Shadow: The vertical line between the low of the day and the open (bullish candle) or close (bearish candle)
The most popular variation of the line chart is the daily line chart, which plots each day’s closing price. The basic problem with the daily line chart is its lack of data on intraday market activity. This issue has been amended in recent years with the use of computer power to plot line charts with smaller increments. Whereas other chart forms may fall behind in the accurate reporting of price data over very small intervals, the line chart can be used to plot data for intervals as short as 5 seconds or even a single tick. Line charts are also extremely useful for obtaining a “big picture” view of market trends over several years. The only remaining flaw with the line chart is its lack of ability in reporting price gaps, as these cannot be represented on a continuous chart.
Bar charts tend to be a little more intricate. They show the opening and closing prices, as well as the highs and lows. The lowest traded price for that time period is located at the bottom of the bar, and the highest traded price for that time period is located at the top of the bar.
The trading range of the currency pair as a whole is indicated by the vertical bar itself. The opening price is represented by the horizontal hash on the left side of the bar. The closing price is shown on the right-side horizontal hash.
A bar represents one segment of time. It could be a day, a week, or even an hour. Sometimes bar charts are also known as “OHLC” charts because they show the open, high, low, and close of a currency pair.
Open – The opening price is shown by the tiny horizontal line on the left.
High – The highest price of the time period is shown by the top of the vertical line.
Low – The lowest price of the time period is shown by the bottom of the vertical line.
Close – The closing price is shown by the tiny horizontal line on the right.* All types of graphs in terminal MT4 are based on bid prices, except the tick chart, which shows both prices.
** Blue and white are used in terminal MT4 by default. You can change the color in the terminal settings.