Forex traders use graphs to analyze data because the format makes it easy to see the implications of what is presented. On a graph, the vertical axis represents the price and the horizontal axis represents the time.
There are four basic types of graphs:
The line chart - This chart is created by plotting the closing price of a currency over a period of time. The closing price is used because many traders feel it is more important then the opening or high and low prices. By focusing on the close, price swings that occur during the trading day can be ignored. When the dots representing the price points are connected it creates a line.
The bar chart – The high, low and closing prices are necessary to form the price plot for each period of a bar chart. The top of the vertical bar represents the high price and the bottom represents the low price. The closing price is the short horizontal line crossing the vertical bar.
The point & figure chart – These charts focus solely on price movement and do not take time into consideration. There is an x-axis but it does not extend evenly across the chart. Only price movements that go above specified levels are recorded. If there is little or no price movement, it is plotted.
The candlestick chart – These charts are created by using the opening, high, low and closing prices. If the closing price is higher than the opening price, then a hollow, white candlestick is drawn. If the closing price is lower than the opening price, then a candlestick is drawn and filled in with black. The hollow or filled portion is called the body. The long thin lines above and below the body represent the high/low price range and are called shadows.
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