2007-12-04T17:01:00.000+02:00

Example price chart

This is an example of what a chart may look like on a trading platform. This example is a chart of a currency pair. At the bottom you can see the time line, to the right of the chart is price scale. The price in the yellow box on the scale is the current price of that currency pair. The chart itself consists of red and green bars that are called candlesticks. There are many other ways to chart a price, but candlestick charting is the most commonly used one as it has more info than a line chart for example. As I'm not going to use any other kind of charts in my analysis, I won't cover them here right now.

How to read candlestick charts

Here's an example of a candle:

A candle shows what the price has done during a period of time. It has 4 points of information: open price, close price, highest price during a period and lowest price during a period. A candlestick is green when its closing price is higher than its opening price and red when its closing price is lower than its opening price. The black tail on the candle is called a wick or a shadow or a tail. A long wick shows that the price has been there during the period of candle forming but has retraced back. The green or red part of the candlestick is called its body. If a candle has very small wicks and relatively large body then there probably was not much hesitation about the direction of price movement during the candle's forming period.

It is possible to look at price action on different time frames. E.g. - when looking at a 4-hour chart, each candle represents 4-hours of price movement. The smaller the time frame looked at, the better the precision of price movement. However, if you look at 1-minute chart and want to get a grasp on what the price has done during a week, it's hard to get the picture, because you see only a few hours of information on your screen at once. Different time frames are used to get a better understanding of the general direction of the market.

Which time frame to use for trading decisions is up to a particular trader, what's his/her strategy, how much experience one has, how much time does one want to spend on observing the charts, etc.

It's a common practice by relatively new traders to try and trade on smaller time frames thinking that it would provide more trading "opportunities". However on smaller time frames, the movements are more irrational and difference in bid/ask prices could eat a large part of profits as well as increase losses, making it much harder to become successful.

Charts