You can test the relative strength of a particular currency by looking at several different pairings. The various pairs available depend on the Forex service you’re using. You can pull up charts for major pairs, such as EUR/USD. You also often have the option of looking at minor pairs as well, such as AUD/CAD (the relationship between the Australian Dollar and the Canadian Dollar).
For example, you could set your overall chart to show a 24-hour period, with each candlestick representing one hour. Each candlestick shows the opening price at the beginning of the hour and the closing price at the end of the hour, as well as the high and low price during that period. Since you chose a 24-hour period, you would have 24 candlesticks total. The position of the candlesticks on the graph shows the fluctuations in the exchange rate between the two currencies over the period of time you’ve chosen. The time period is expressed in intervals along the Y-axis and the exchange rate is charted along the X-axis.
If the closing price is higher than the opening price, you have a bullish candle. If the opening price is higher than the closing price, you have a bearish candle.
The highest point, at the tip of the wick, is the highest exchange rate for the pairing for the selected period. The lowest point, at the tip of the shadow, is the lowest exchange rate for the pairing for the selected period. On a bullish candle, the highest line of the candle will be the closing price, while the lowest line of the candle will be the opening price. For a bearish candle, the highest line would be the opening price and the lowest line would be the closing.
Big candles: A big candle body indicates a trend that is continuing for a longer period of time. If you see a large bullish candle, you know the bullish trend is continuing for that pairing. A large bearish candle indicates a continuing bearish trend. A bullish candle might signal you to buy that pairing, while a bearish candle would signal you to sell. Doji candles: Doji candles have little to no candle body. These indicate the market condition is neutral or tentative. Doji candles can tell you to hold off on either buying or selling that currency pairing.
For example, suppose you see a Doji candle with the candle line at the bottom of the formation so that there’s a longer wick and no shadow. If you see that candle at the top of an uptrend, it may signal that the uptrend is reversing.
For example, if you wanted to evaluate the strength of the US Dollar (USD), you might look at it paired with Euros (EUR), then with the Chinese Yuan (CNY), then with the Japanese Yen (JPY).
Since line charts only compare a single value at a time, a longer period can help you see large-scale patterns that you wouldn’t see on charts that only analyzed a shorter time period.
If you compare multiple line charts, they can give you a better idea of exchange rate movement. For example, you could compare a line chart of high prices with a line chart of low prices for the same period. Significant differences between the two lines would indicate volatility in the exchange rate for that particular pairing.
This relatively simplistic view of overall rate movement can supplement your analysis on other charts. For example, if you’ve noted a down-trend in the last 24 hours, you could check on the line chart to determine whether the lowest point is down overall, or coming down from a spike.
Bar charts represent the high, low, opening, and closing price for the interval represented by each bar. Unlike line charts, however, the bars are not connected to each other.
For example, you could use hour-long intervals over the course of a day. Each bar would represent one hour and you would have 24 bars over the course of the day. The Y-axis would follow hour-long intervals so you could progress the movement of the exchange rate.
The position of the bar relative to the bars before and after it gives you an idea of the overall trend for that pairing. For example, if the bars are moving steadily upwards, that indicates that the rate is increasing over time.
If the open-price line to the left is higher than the closing-price line to the right, you have a bearish market for the pairing in that interval. In contrast, a higher closing-price line indicates a bullish market.
For example, if the overall chart appears to indicate an upward trend, you might want to go back further to see when that trend began. Using a bar chart is particularly helpful if you want to look for gaps in the exchange rate. These are spots where the bar for the first period doesn’t overlap any part of the bar for the second period. [17] X Research source
