Forex trading is all about interpreting graphs from the trading charts to the charts displayed by various technical indicators. In a nutshell, to profitably trade forex, you have to have some basic understanding of reading graphs to interpret what the trading charts and indicators are displaying.
Although the candlestick chart is the most commonly used forex trading chart, you could choose to also use a line chart or bar chart for the trading chart. The line chart is a line graph, while the bar chart is a bar graph.
The majority of indicators also display different graphs either on the trading chart or a chart below the trading chart. For instance, the relative strength index (RSI) displays a line graph, while the moving average convergence divergence (MACD) displays a histogram and line graph on the same chart.
To better explain how to interpret each graph, we shall look into each graph type in the section below.
Types of charts
Although there are many different types of charts and graphs, four are the most common, especially in forex trading, and they include bar graphs and histograms, line graphs, Cartesian graphs, and pie charts.
Bar Graphs and Histograms
These are used to show figures that are independent of each other. Bar charts are used in forex trading charts, while histograms are mostly used in displaying technical indicators.
![Bar chart]()
An example of a technical forex indicator that displays a histogram is the MACD indicator which often indicates a histogram that shows the distance between the calculated value of the MACD and its signal line (the line graph plotted on the MACD chart). If the MACD’s weight is above the signal line, the histogram will be above the MACD’s baseline. On the other hand, if the MACD is below its signal line, the histogram will be below the MACD’s baseline.
![MACD graph]()
A histogram or bar graph gives a clear picture of when or which specific values are larger or smaller. When the value under consideration is large, the length of the histogram or bars is longer and vice versa.
Pictographs
A pictogram is a particular type of bar graph that uses pictures to represent the number of items instead of using an axis with numbers.
![Pictograph chart]()
Pictographs are not common in forex trading charts unless a developer chooses to use them to display technical indicators.
Pie Charts
A pie chart looks like a pie (or a circle) cut up into segments. These segments represent or show the amount or size of different things.
Pie charts, unlike bar graphs, show dependent data. For instance, you could have a pie chart showing an organization's sales in a week where each segment represents the number of sales per day.
![Pie chart]()
Pie charts give the general outlook since you can easily pick which is larger or smaller by just looking at the chart. However, they are not good when the actual figures are required unless the figures are included in the segments. It would be hard for you to tell how much a particular segment represents by looking at the chart.
Pie charts are not very common in forex trading though developers can use them to display technical indicators.
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Line graphs
Line graphs are used to show dependent data, which offers a particular trend over time. It displays a line that joins various point values on a chart. Every point corresponds to a specific value on the vertical scale.
Line graphs are typical in forex trading, and you could even choose to have your trading chart displayed as a line chart.
![Line chart]()
The only disadvantage of using a line graph, especially in forex trading, is that you cannot directly tell the opening and closing prices every hour. But line graphs are excellent in depicting the general market trend, and no wonder majority of technical indicators, including the relative strength index (RSI) and moving average (MA), display line graphs.
Cartesian graphs
Cartesian graphs compare two sets of numbers (coordinates) and mathematicians mainly use them to solve mathematical problems. The first number is plotted on the x-axis, while the other numbers are plotted on the y-axis. An example of a Cartesian graph would be written as (5, 7) where the point would be plotted at 5 points on the x-axis and 7 points on the y-axis.
![Cartesian chart]()
Cartesian graphs are not typical in forex trading.
Conclusion
While it is essential to understand how to use and interpret the above types of graphs and charts, you should emphasize the bar graph, histogram, and line graph.
You can display the trading chart on your broker's trading platform as either a line graph or bar graph beside the regular candlestick chart.
