What is Price History?
The article describes what price is and what price histories are on the Forex market.
Forex (Foreign exchange) is an exchange where different currencies are traded.
People who buy or sell currencies are called traders. Traders buy currencies from or sell currencies to dealers who work on the exchange.
Currency pair (Instrument)
When a trader buys or sells currencies, he/she actually exchanges one currency for another. The two currencies form a currency pair, for example, USD/JPY. The first currency in a currency pair is called a base currency. The second one is called a counter currency.
Currency that traders buy or sell has its price. Prices on Forex as well as on any other market are formed on the basis of the supply and demand. If more traders want to buy a certain currency (demand) than sell it (supply), then the price moves up. Conversely, if more traders want to sell a certain currency (supply) than buy it (demand), then the price moves down.
Depending on the operation (Buy or Sell), the trader wants to perform, he/she is quoted either an ask price or a bid price.
Ask price is the price at which the trader can buy the currency from the dealer. For example, if USD/JPY has the ask price of 120.15 of Japanese yens, it means that the trader can buy 1 American dollar for 120.15 of Japanese yens.
Bid price is the price at which the trader can sell the currency to the dealer. For example, if USD/JPY has the bid price of 120.05 of Japanese yens, it means that the trader can sell 1 American dollar for 120.05 of Japanese yens.
The difference between the ask price and the bid price makes it possible for Forex to be profitable. That is why the ask price is always higher than the bid price.
Tick and Price History
Price on the market changes almost always when a new deal appears. Each particular change of the price is called tick. A price history is a sequence of ticks in the order of the new price appearance.
Very often tick data is too detailed or voluminous to be analyzed. In that case, the price data is presented as OHLC bars. An OHLC bar is open, high, low and close prices that were reached during a particular period of time in the past. The analyst can use different length of periods to group the data, but the most prevailing periods are the following: 1 minute, 5 minutes, 15 minutes, 1 hour, 4 hours, 1 day, 1 week. Since there are two classic chart presentations of the bar data - price bars and Japanese candles - the price bar is often referred to as a bar or as a candle.
Who Needs Price History?
Price history is used for technical analysis of the market. It can be displayed as a price chart or processed using small algorithms called technical indicators.
Price history can also be used to simulate past markets, for example, to backtest or optimize automatic trading strategies.
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