A bullish candlestick forms when closing price is greater than the opening price which, indicates the existence of buying pressure.
A bearish candlestick forms when closing price is lower than the opening price which, indicates the existence of selling pressure.
Charts are essential tools that show market movements. They are simply a graphical depiction of the exchange rate by showing how the price of a currency pair has changed over time.
There are generally three main types of charts that most traders use:
Candlestick charts are a technical tool that fits data for multiple time-frames into single price bars. To create a Candlestick chart, one must have a data set containing the close, open, high, and low values for that specific time frame. In other words, each candlestick displays four pieces of information for a particular time frame:
the closing price,
the high price,
and the low price.
This makes them more useful than traditional open-high, low-close bars (OHLC) or simple lines that connect the dots of closing prices.
Using Candlesticks and understanding their patterns is crucial and helpful in technical trading for tracking the movement of currencies in the forex market.
Many traders consider candlestick charts smoother and more visually appealing.
Let’s take a look at the bullish (rising) and bearish (falling) candlestick below for a better illustration.
A bullish candlestick forms when the closing price is greater than the opening price which, indicates the existence of buying pressure.
On the other hand, a bearish candlestick forms when the closing price is lower than the opening price which, indicates the existence of selling pressure.
Generally, Candlesticks are easy to interpret and are comprehensive for chart analysis.
There are many candlestick patterns that can be useful to create an edge over the market for identifying the movement for trade opportunities or potentially filtering some of the bad trades.
Take a look at the live Candlestick chart of EUR/USD below to get a better picture of how it looks like.
Bar Chart (OHLC)
Just like candlestick charts, bar charts also display the opening and closing prices, as well as the highs and lows.
However, the difference is that the bar charts do not display colored bearish and bullish bodies, which could make them less visually appealing and sometimes confusing to some traders.
Let’s take a look at the bullish and bearish bars below for a better illustration.
Please note that each bar represents a specific timeframe. For instance, a five-minute bar shows the opening and closing prices and the highs and lows within the five-minute timeframe.
The top of the vertical bar displays the highest traded price for the given timeframe, while the bottom of the bar indicates the lowest price traded for the given timeframe. Thus, the vertical bar shows the trading range for a currency pair. The horizontal line on the left represents the opening price for the pair, and the one on the right represents the closing price.
Look at the live bar chart of EUR/USD below to better understand how it looks.
Line charts, unlike the Candlestick and Bar charts, just show the closing prices of the currency pair. They form by connecting one closing price to the next one. They generally filter all the movements and noises that occur during the trading sessions and just display the closing prices. And because of that, the line chart is helpful to give a general overview of the market condition, for example, whether it is trending or ranging.
Look at the live line chart of EUR/USD below to better understand how it looks.