FX charts are important tools of forex technical analysis. By interpreting forex charts correctly you can easily find out the direction of the prevailing forex market trend. You will also be able to ascertain whether your trade transactions are in the same direction as the major trend of the market or not.
Candlestick, one of the most popular fx charts was discovered by Homma, a Japanese trader in futures market. He found that the market for rice was deeply influenced by emotions of the traders. Emotions played a crucial role in dictating the price of rice, in addition to the demand and supply factors.
Candlestick fx chart is similar to a bar chart. In candlestick chart the daily line indicates the market’s opening levels, the day’s highest, lowest and closing levels.
A unique feature of this chart is the wide part of the forex chart which is also known as the “real body”. This real body indicates the range between the opening and closing levels of a specific day’s trading. If the real body is filled in or colored in black, it indicates that the closing levels were lower than the opening levels. It means the opposite if the real body is not filled in and is empty.
Comparison of Candlestick and Bar Charts
o Relationship between opening and closing prices
Bar charts lay emphasis on tracking the movement of the current day’s closing price from that of the previous trading day’s closing levels. Analysts using candlestick FX charts concentrate on identifying relationship between the same trading day’s closing and opening prices.
o Change in body color
Both these FX charts basically indicate the overall trend of the currency price. However by looking at the change in body color of the candlestick chart it is much easier to interpret the day to day market sentiment. Thus although both bar chart and candlestick chart indicate the same information, the latter is very easy to visually interpret and understand.