Technical analysts commonly use a number of different types of price charts in order to review the price action of exchange rates for a certain currency pair.

They generally employ these charts to identify trends and other classic chart patterns. These reliable price patterns often allow technical analysts to forecast future exchange rate movements with impressive accuracy.

Although such charts were formerly drawn by hand on graph paper, today's forex traders often plot them using computers running special technical analysis software that incorporates historical exchange rate data for the currency pairs of interest.

Historical Data Commonly Kept for Charts

The historical data kept for displaying on forex charts drawn for a particular currency pair will generally include the following items for each time period made available for analysis:

• O = Opening price

• H = High price

• L = Low price

• C = Closing Price (or the Last Price for the most recent set)

• V = Volume or the number of trades occurring

Nevertheless, not all chart types require all of this data in their construction.

Also, many technical analysis systems compile information on the open interest in the relevant currency futures contract.

Popular Chart Types

Among the more common chart types used by technical analysts are the line charts, bar charts and candlestick charts. They all plot the rate on the vertical axis of the chart, with time plotted on the horizontal axis.

Nevertheless, time is not generally a factor in both tick charts and the point and figure charts used by many professional forex traders.

These chart types are described further as follows:

• Line Chart:

As the name implies, this simple chart type just draws straight lines from a particular price - usually the closing price- to the same price of the following time period. Such charts are often used to help identify trends.

• Bar Chart:

Bar charts consist of a set of bars or vertical lines drawn from the high price for a given time period to the low price for that same period. Each bar also has a small horizontal line or tick to the left at the level of the opening price for that time period, as well as a tick to the right at the level of the closing price.

• Candlestick Chart:

This type of chart consist of a series of candles that have a solid body that is drawn from the opening price to the closing price and then filled in with a different color - usually either black and white or red and green - depending on whether it was a down or up period. The candle also has upper and lower wicks that consist of vertical lines which respectively extend up from the body to the high and down from the body to the low

• Point and Figure Chart:

Point and figure charts focus exclusively on price and they notably lack a fixed time component. They have a box size that results in the next box on the chart being filled in when the price moves a certain amount in the same direction. Traders generally place an X in the box in the case of an upward move or an O in the case of a downward move. They also only switch from X's to O's when the price reverses more than a certain amount, usually three boxes worth.

• Tick Chart:

These charts usually plot a new tick or change in the price after a set number of trades, and they are often used by short term traders in conjunction with volume charts or by longer term traders to time their entry into the market. This type of chart generally does not have a fixed time component, although it does naturally progress over time.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.