Graphical representation of price data is a big part of the FX trading process(see here). There are various types of charts that traders could use in their trading, and it is essential to understand how to read these charts and which one to use at a particular time.
Technical analysis
The type of chart used depends mainly on the trading style the trader has adopted. Technical analysis uses past performance to predict future performance by identifying critical points for turning an asset’s prices.
In contrast, fundamental analysis looks at the market from a broader perspective, i.e., political events or other economic factors that may affect asset price movements. Also, if we look into Singapore commercial banks offering Forex services, some provide only Fundamental analysis information while others provide mainly Technical analysis information.
When beginning with charting, there are two main categories that you need to know about: bars and candlesticks. Bars refer to the type of chart where the price movement is drawn as a vertical line. In contrast, candlesticks show the same information via horizontal line and provide additional information such as opening and closing prices and depth of market, respectively.
The following will go into further detail on these two different types of charts:
Price Bar Charts
Price Bar Charts (also known as Line or OHLC – Open-High-Low-Close). As mentioned earlier, price bar charts (line or OHLC style) are the most common chart type. They show four pieces of information in one line: open, high, low and close prices. Generally speaking, open represents the price at which an asset started trading for that day, while the close is the price where it ended.
The high shows where it reached its highest point during a specific period, e.g., hourly, daily or weekly, while the low is conversely used to indicate where an asset fell to its lowest point during that time frame. Other types that use more than four data points to draw their graphical representation based on different intervals, such as monthly bars, which show Open, High, Low and Close for each day of that month.
Line or OHLC style charts
Line or OHLC style charts are the most common type used in Singapore Forex trading. They provide a simple depiction of price action for easy identification and use in market analysis. Generally speaking, when there is an uptrend (price continues to rise), traders expect to see long lower shadows.
The shadows indicate the lows during the day, while inverted hammers or shooting stars typically indicate a bearish reversal trend when it forms at the end of an uptrend.
Line charts like these can be combined with various technical indicators such as moving averages and MACD, discussed later in this article.
Other than those mentioned above, there are other charts that traders could use in their trading, such as candlestick and open high low close (OHLC).
Candlestick Charts
Candlesticks or Japanese candle charting style is another commonly used chart for analyzing price movements, especially on Forex markets. They provide more information than a line or OHLC style by displaying the opening and closing prices and the high and low points during a specific period: hourly, daily etc.
It gives us an idea about how prices moved throughout each period and help to highlight important areas where potential reversal may occur. The candlestick pattern called doji was formed almost precisely the same time the price opened and closed. It typically indicates an area of indecision where the buyers and sellers could not gain control, and it could be a sign that a breakout is about to happen.
In conclusion: FX trading in Singapore
If you are a newby on the online trading scene we highly recommend that you start your trading career using a demo trading account. This is why partnering with a trusted brokerage, like Saxo Traders in Singapore, is a safe first step. They offer free demo accounts with loads of free resources to help you get started like a pro.
