Line Charts in Forex [Explained]

With the advances in technology, forex traders have developed highly complicated trading methods, with sophisticated graphs. 

But let me tell you something, some of the most successful traders believe that the best methods are the more simple one.

Why?

Because simple methods are easier to understand and therefore easier to use.

Speaking of simple, do you know what the simplest type of chart is?

A line chart.

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What is a line chart?

A line chart is the simplest type of chart which draws a line from one closing price to the next closing price. Over a long period of many closing prices, this forms a coherent line in which trading information can be gathered.

This type of chart provides traders with a clean, easy to understand view of the instrument’s price as it filters out all the noise.

But a picture speaks a thousand words so let’s take a look at what a Line chart looks like.

Line chart is simple to follow, but it does not provide the trader with much detail about price behaviour within the period.

All it shows is that the price closed at X at the end of the period. 

You have no clue what else happened.

That’s why this type of chart is usually used to get the bigger picture view of price movements.

Fun Fact: Charles Dow, the developer of Dow Theory, was only interested in the close of the instrument, as the close determines each day’s unrealised profit or loss.

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Should you be using a Line chart to trade?

Advantages of using Line Charts:

• Line charts filter the market noise.
• The simplicity of line charts make the markets appealing and easy to follow.
• The simplicity of line chart also help in determining support and resistance level, turning points and chart patterns.

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Disadvantages of using Line Charts:

• Line charts do not provide enough price information.
• Its simplicity is also its greatest weakness as it misses out on key data that otherwise would have influenced trading decisions. 
• Line charts can generate a lot of false signals on lower time frames if used incorrectly.

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So.. what are your thoughts? Will you be using a line chart when trading?

Let me know in the comments below!