Analyzing charts is at the core of technical analysis for forex market traders. The charts can be quite detailed but a much simpler analysis often will suffice. There are two main types of charts: bar charts and candlestick charts.
Bar Charts
Bar charts are the most widely used form of charting among Western traders. In fact, most charting systems are programed to default to show bar charts. A bar chart is composed of price bars which include the key points of each trading period. The points are either open, high, low and close. A trading period is the time interval selected for analysis anywhere from five minutes to an hour and even daily and weekly.
Bar charts are useful for drawing trend lines, measuring retracement levels and tracking general price volatility. They are appropriate for basic analysis. They offer a picture of an overall trend.
Candlestick Charts
Candlestick charts date back to 18th century trading in Japanese rice markets. They offer more specific indicators than bar charts. These indicators include the use of color and a clearer break down of the key price points during a trading day. They are useful for recognizing spot trades like price reversals. They are predictive in nature, offering a visual representation of price movements.
The best trading period to use when analyzing candlestick charts is daily or weekly periods as opposed to the minutes or hours commonly used with bar charts. By using longer period, the trader can view a more concrete verdict on the future direction of the currency.