There are two basic way to analyze the price movement in Forex. One is fundamental analysis that uses the economic and political news. Another one is technical analysis that uses chart patterns and technical indicators.

Technical analysis includes studying the price charts and applying different types of technical indicators. In order to learn to base your trading on technical analysis you need to look at the historic data and try to recognize patterns of forming certain tendencies. If you learn to do that you can predict the price in real time. Now you can make trading decisions based on these predictions.

There are three types of Forex charts:

- The line chart is the first one

The name of line chart tells it all. It is a line connecting the closing prices. Ups and downs of that line show the movement of the currency pair. Unfortunately this type of price does not show you any information on price behavior within the time period. You can see only the close price.

- Bar chart is the second one

Bar chart on the other hand gives us some information about the price movement within the time period. The bar chart consists of vertical lines or bars. Price forms the top of the bar by reaching the maximum value during that time period. It forms the bottom of the bar when price reaches the minimum value within that time period. Besides the vertical bar there are two short horizontal ones. The one at the left is open price and one at the right is close price of that time frame.

Since they show the open, high, low and close, bar charts are also sometimes called OHLC charts.

- Third type of charts is candlestick chart

The information presented on the candlestick chart is the same as information on bar chart. The only difference it is graphically better shows the tendency inside the time period.

You have the same vertical line with the high at the top and the low at the bottom, but there is also a wide block in the middle showing the gap between the opening and closing price. The blocks will be filled white (for a rising price) and black (for a falling price) or more often these days they are colored. Colors can vary but a common combination is green or blue for rising and red for falling.

The reason many traders prefer candlestick charts is that it can be read and interpreted easily. Trend and turning points are clearly seen due to color difference.

When you see a trend forming, you can make money by trading in the same direction as the emerging trend. ‘The trend is your friend’, as currency traders say. For this reason, identifying the trend is the most important thing to learn in Forex technical analysis and using candlestick charts is probably the easiest way to do this.

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