If you have been in the forex environment for a sufficient amount of time, you should have heard about forex chart patterns or forex patterns.
Charts, which are the biggest guide for traders when investing in the forex market, require some basic knowledge of the financial world. In our content, we have included what you need to know in order to better interpret what is expressed.
Analysis in financial markets is a very important detail in terms of showing the right path to investors. It is divided into fundamental and technical analysis. In order to understand and interpret the charts, you should have knowledge of these forex patterns.
Regardless of which market is traded, price changes must be monitored. This case, describing the market follow-up, includes fundamental analysis. Technical analysis, on the other hand, consists of the interpretation of more numerical concepts, as the name suggests.
Your interpretation of graphs showing the course of any investment instrument in a certain period is technical analysis. But you must have some information to make this comment. Below, you will find various information on forex charts (candles, lines, bars), which are one of the biggest helpers of the decision-making phase.
The most popular Forex Pattern: Candlestick Chart
Candlestick charts are the leading models among the most used forex patterns. Candlestick charts show the momentum and movement of prices for a certain period of time.
Its history dates back to the 1850s. It was used by the Japanese for the first time and they provide information about the supply-demand balance in the market. These charts provide more information than other types of graphics and contain more visual detail.
So the reason why candlestick charts are used more often than others is that they show more information to users. Especially in the forex market, they are used frequently as short-term transactions are predominant.
So what information does the candlestick chart contain?
- The Direction of the Pair,
- Opening – Closing Price,
- Highest – Lowest Price
The candlestick chart shows the price volatility of the investment instrument over the desired time frame. In other words, you can see price changes for 1 day, 1 week, 1 month, 3 months, 6 months, 1 year and more. It offers the possibility to choose any time interval from seconds to years.
First, after getting to know the parts of the candlestick chart in detail, we will move on to how to read the chart. Below, all sections are introduced on a candlestick;
In candlestick charts, each candle body represents the specified time frame. So if you have chosen a 5-minute chart, a candle body will give 5 minutes of information.
As can be seen in the image, thin lines passing through the middle of the candle bodies express the shadow. The lower shadow is at the bottom and the upper shadow is at the top.
The line where the upper shadow ends means the highest price, while the lower shadow’s finish line means the lowest price.
If you wish, you can mark the rise and fall in different colours. Besides that, of course, the colours of the candlesticks mean a number of things.
Red coloured candles indicate that the closing price is lower than the opening price, while green coloured candles indicate that the closing price is higher than the opening price.
Green candlesticks have the opening price at the bottom and the closing price at the top. The opposite is true for red candles. That is, the opening price is given at the top and the closing price at the bottom.
The queues show the highest and lowest levels seen in the selected time period.
Some graphics use black and white colours. If the price of the vehicle is up, hollow (white) candles are used, and if the price is down, solid (black) candles are used.
Candlestick charts covering a week or more typically represent a 24-hour period.
You can read the opening-closing price of the day represented by the candlesticks on the candlestick chart, which is the floor-ceiling price reached that day. At the same time, you can easily see whether prices are in an upward or downward trend.
You cannot see that all candlesticks in a chart are the same length. Some are short, some are long.
The longer the candle body means that the buying – selling pressures are higher within the specified time period.
Bodyless Candles (Doji)
Although not uncommon among the forex patterns, bodyless candles can sometimes be found on the chart. These consist only of bars we call shadows.
When you see the Doji, you need to understand; It means that the opening, closing, lowest and highest prices occur at the same level. They resemble a plus (+) sign with a long vertical bar and a short horizontal bar.
Usually occurs on days when the selected vehicle is not traded. They indicate the existence of an unstable environment in the market. Because, in fact, that the opening and closing are at the same level means that the buying and selling tendencies are equal among themselves.
Short Body Candles (Spinning Top)
The length of the candlesticks shows how strong and weak are the daily price channels.
The short body of the trunk also indicates instability in the market.
Refers to candles that consist of only a body and do not have a shadow.
Its meaning is that it closed at the lowest or highest level in that period. Indicates that the market with buyers or sellers is dominant depending on the situation. This is evident by the color of the candle.
What is Bar Chart (OHLC) and How to Read It?
Bar charts are a simplified form of candlestick charts that are less popular among forex patterns. Their images are similar to candlesticks, but they are not that easy to read. For this reason, they are less preferred than candles. They are an important tool in determining the trend in the market.
You may also witness the bar graph called “OHLC bar“. This name is a combination of the English initials of the words open, high, low and close.
As in candlestick charts, they provide information about the opening-closing price, floor-ceiling price and the direction of the pair. Again, they show the price movements in the time period you want.
The line to the left of the bar chart gives the opening price of the pair; The line to the right gives the closing price. However, the upper point of the bar shows the highest value and the lower point shows the lowest value.
Bar charts, which provide the same information as candlesticks, are better suited for technical analysis than a line chart. However, reading the sticks is more complicated and can cause confusion.
The main difference from the candlestick charts is that they have no bodies. In bar charts, the lines to the right and left of the bar are very important. Because they provide information about the general course of prices.
If the line is to the left of the bar chart, it indicates the opening price of the pair, and if it is to the right, it indicates the closing price. It is understood whether it is in a downward or upward trend depending on its bottom or top position.
If the line to the right of each bar is below the line to the left, it means the price has fallen. If it is above it means it has risen.
What is Line Chart, How to Read?
The simplest and most basic type of chart among forex patterns is line charts. It is drawn by combining the closing prices. The only information they give is price information.
In the line chart, the horizontal part is time, and the vertical part is the price movements. The line chart does not provide very detailed information to its users. It gives brief and concise information about the course of prices. Therefore, it is a more suitable chart type for long-term transactions, not short-term transactions.
They are generally drawn on the basis of the closing price. At the same time, if your forex trading platform is a little more advanced, it is possible to create line charts on the opening and floor-ceiling prices.
When you draw using different data, line charts still give one piece of information. In any case, there is only one piece of information they give. Because of these features, they are not preferred much. They are used less rarely than others.
Reading and interpreting charts and Forex patterns is because of the need for analysis. In other words, the information we have given above is important for efficient analysis. Graphics, on the other hand, help you to get the right position. In short, it is one of the biggest helpers of investors.
If you think that you are insufficient in analyzing, you can get information on many subjects such as how to do forex analysis, trading strategies, how to read forex patterns or charts and how to place buy and sell orders by visiting our page.
You can understand the analysis, the logic of the trading transactions in the most accurate way, especially by using the training videos and trial accounts. These are the most popular way to self-educate yourself for forex patterns.
The graphics that seem a little complicated at first glance will be much easier for you when you learn them.
Forex charts are the best indicator that allows you to make decisions about the position to take and apply technical analysis tools. You can determine the trend and see the support-resistance points in the Forex market thanks to the charts.