Recognizing Price Chart Patterns in Forex
- Overview
Forex traders use price charts to track real-time exchange rates.
Price charts come in many forms including candlestick price charts, bar charts, and Min / Max price charts to name just a few.
Granularity refers to the length of time for each reporting period in the chart. In the example below, granularity is set to 1 minute which means that at each data point, or tick, the price chart displays the pricing information for the previous period (in this case, each minute).
It is important to select the granularity that best matches your overall trading style. Generally, the shorter the length of time you tend to hold open positions, the shorter you should set the time intervals for your price chart.
- TREND LINES
A trend line is a line that you can place over two or more price points on a chart.
Trend lines can be used to highlight previous support and resistance price levels, as well as overall market direction.
A support trend line connects the lowest price points for a currency pair and shows the recent levels to which the rate dropped before bottoming out and rebounding. This is the point at which the market supports the price.
A resistance trend line connects the highest prices a currency pair reached before falling back to lower levels. This is the point at which the market resists moving the price higher.
Directional trend lines are used by some traders to highlight an overall market direction for a currency pair. The following example shows that despite a series of fluctuations, overall the market trended upwards during the last three hours:
BAR CHARTS
Bar charts are popular because they show more detail than a simple price chart. With one glance of a bar chart, you can see the open and close prices for the reporting period as well as the high and low prices for the period.
When reading bar charts, remember that each bar represents a single reporting period (half an hour in the example above) and includes the following information:
Period high is the top tip of the bar
Period low is the bottom tip of the bar
Period closing price is the small line on the right side of the bar.
By combining all this information into one chart, you can quickly assess the market direction for the currency pair.
