Price charts are one of the most important factors to trading. A price chart is simply a sequence of prices plotted over a particular timeframe. Charts are referred to as time series plots in statistical terms. On the chart, the Y-axis (vertical axis) represents the price scale, while the X-axis (horizontal axis) displays the time scale. Speculators perform technical analysis on charts, in order to forecast potential future fluctuations in price. But the usefulness of charts is not limited to technical analysis, because they can also benefit traders who perform fundamental analysis, who can relate certain economic factors to specific price movements in the past. The figure below is an example of a price chart, which shows the fluctuations of GBPJPY (refer to price of the Y-axis) , over a period of around 3 weeks (refer to X-axis).
A chart displays previous price movements through candlesticks. The blue and black rectangles on the chart above are candlesticks, shortly referred to as candles. A candle displays the open, high, low and close (OHLC values) of price over a limited period of time, known as the timeframe. There are 2 main components in a candlestick, the candle body and the wicks. The body displays the opening and closing price, while the wicks represent the highest and lowest peaks that price reached during a particular timeframe. To further understand the concept of a candlestick, refer to the figure below, which depicts a bullish and a bearish candle. Let’s assume that these candlesticks are shown on the 1 hour timeframe. This implies that each of these 2 candlesticks took 1 hour to form. The body and the wicks tell an accurate story of what exactly happened during that 1 hour. These concepts are applied to any timeframe, we just used the hourly timeframe as an example.
