Why Use Candlestick Charts?

Filed under: Learn Forex Trading |

If you are not familiar with candlestick charts, you may be wondering why many people use them. Today, I would like to take you through the different kinds of charts that can be used when trading forex, and list some of the pros and cons of each.

Line Charts

Popular trading platforms usually have three different options for viewing your chart, these being the line chart, bar chart, and candlestick chart. The first of these, a line chart looks like this (see Figure 1):

 

Figure 1.

As you can see, it is called a line chart because it is made up of one continuous line. This line is formed by connecting the dots from the close of each day or session – whether it is a 1-hour session, or a daily session. It is a very simple and effective way of looking at price, and it tells us the direction of the overall trend, which is adequate for longer-term investors.

Bar Charts

Bar charts (Figure 2) tell us a little more about what is going on with price between the open and close of a session (rather than just giving us information about the close like in line charts). We can see at what price the session opened, what was the lowest price of the session, what was the highest price of the session, and what was the close of the session. This gives us valuable information about the market that we cannot get from line charts. For example, note the first high point on the chart with a long pin bar, tipping us off to the fact that the trend might be reversing. We do not see this on a line chart.

 

Candlestick Charts

Candlestick charts give us exactly the same information as bar charts, but they do it in a much more visually appealing way. Bar charts are very hard to look at, but the information on candlestick charts just jumps out at you! This is the main reason why I look at candlestick charts. If you don’t believe me, just take a look at the difference for yourself (see Figure 3):

Figure 3.

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