Whether it is Binary Options Trading or Forex trading, the principles of understanding price movement, charts and candlesticks remains the same.
Let us understand what charts are by looking at the three most popular types of charts we come across on the better charting stations.
1. Line Chart
2. Pin Bar Chart
3. Candlestick Chart.
Here is a description and graphic of each chart and the salient facts that you need to know about each chart.
Line Trading Charts
What line charts do, is that draw a simple line from a closing price to the next closing price, depending on the time frame of the chart. The zig zag movement of the price shows us how the price is moving over a specified time frame.
Here is an example of a line chart for the EUR/USD currency pair.
Pin Bar Trading Charts
This is where it becomes a little bit more complicated. The bars where they hook, show the opening as well as the closing prices. They also show the highs and the lows. If we look at the bottom of the hook, we understand at what point, the price was traded at its lowest. If we look at the hook at the top, we can see what the highest price was traded at during that particular Bar. Each Bar will represent the time frame chosen. Example if we are looking at a five minute chart, each bar will represent five minutes of trading. If the chart is instead an hour chart, then each bar signifies an hour of trading. The opening and closing price per bar, show the volatility of the price, where it started and where it ended during that particular band of trading time. Therefore each time frame is called a BAR. Sometimes these Pin Bar Charts are also called the ‘OHLC” or else simply put the Open, High, Low and Close history of the segment of time it represents. Bar charts are also known as OHLC O=OPEN, H=HIGH, L=LOW, C=CLOSE Each Pin Bar represent the opening price, the highest and the lowest point it reached during the time frame and at what price it closed.
Candlestick Trading Charts
The Candlestick Trading Chart is showing exactly the same information as the Pin Bar Trading Chart, but it is more colourful and much easier to read. Candlestick trading charts can come in solid black colour, but the more exciting ones are in blue and red. The body part of the candlestick shows whether the price in the time band which the candlestick represents opened or closer higher or lower than the starting price.
If the body is red, it means that the price will have closed lower than it started. The size of the body is the difference between the opening and the closing price.
Trading charts are a very helpful visual aid to trading. Although there are these three types of trading charts, the candlesticks are without a doubt, the more visual ones and have several advantages over the other two types of trading charts.
With the help of coloured candlesticks a newbie or new trader, or beginner can start understanding the price movement of currency pairs, commodities, assets and stocks.
Visually, candlestick trading charts are very easy to understand and do not require too much concentration (which we want to apply to our trading in reality!)
Once we start understanding candlesticks and the myriad of names by which they are called – all very cool names – such as Dojis and Shooting Stars – we will start looking at the candlesticks and putting patterns in our trading. Pretty much like the Milky way!
Finally candlesticks are instrumental in helping us understand market changes and using their patterns to trade with. We will be looking at the uptrends and downtrends and decide which direction we shall be riding our trading waves.
Here are some recommendations of excellent free charting stations where you can start experimenting with how charts look. The drop down menus from Net Dania for example, help you select, the asset or currency pairs you want to explore. Then the next widget opens up the different time frames, and finally for when we start trading a little bit more professionally we can even find a whole plethora of trading tools. So if you are a newcomer to this site, brace yourself, for rewarding hard work. Understanding candlesticks, will light up your trading life.
Free Charting Stations
Net Dania (is not supported by Chrome) requires Java download
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