Basics about Forex Charts and Chart Reading
If the trader is going into the Forex Technical Analysis, then the word “Chart” is familiar to him. Trend is the friend, and chart is the friend to define the trend. Traders that care about the results of their trading use Forex Analysis and particularly charts, to watch the way the trend goes. This tutorial will guide the beginners through the Forex Chart types and Forex Chart reading.
Line Chart
Line Chart is a simple, but still a very powerful tool for trading. Its power lies in simplicity, because line chart provides easy to understand view over the closing price for some exact period of time. The prices are displayed on the side of the chart, and the dates are displayed in the bottom of the chat. Single line shows the closing price each given day.
Bar Chart
Bar Chart is the most popular chart for watching the price security. It displays the open, high, low and closing price of the security. Each vertical’s bar top shows the highest price traded by security during the period of time, the bar’s bottom represent the lowest price in it’s turn. Closing “tick” can be seen on the bar’s right side to define the last price traded by security during that period of time. If the opening prices are available, they are defined with a tick on the bar’s left side.
Candlestick Chart
Candlestick Charts for displaying the open, high, low and closing prices in the similar manner to a bar-chart, but in a format that extenuates the relation between the closing and opening prices. It’s just the new way of looking at prices, without involving some calculations. Each candlestick shows one period of data.
In order to get profits in the world of advancement and technologies, the trader has to be proficient, and reading, and what is even more important – understanding chart patterns and technical trading indicators. Below in this tutorial there are just some basic points to help the trader understand the Forex technical analysis and currency chart reading.
Price
Price is reflecting the actions and perceptions that have been taken by the participants of the market. It’s the urgency between sellers and buyers in the prices movement creating pit. So it means that all the fundamental factors are discounted in price quickly. So, studying the price charts, trader is able to see indirectly the market psychology and fundamental all in once – afterall, market is fully feed by two main emotions – Fear and Greed, and once the trader is able to understand it, then he begins to understand the market psychology and the way it relates to the chart patterns.
In the data window of the chart the trader can see the following:
O = Opening Price;
L = Lowest Price;
H = Highest Price;
C = Closing price;
Price bars are a linear representation of a time period. This lets the viewer see a graphical representation of a specific time frame activity summarized. The highest point of the bar shows the highest price achieved through the period of time, and the point that is the lowest in its turn shows the price that was the lowest through the same period. Bars that are called regular show a little dot on the left of the bar, which shows the opening price of the period, and the one from the right side, showing the closing price of that period.
The market usually displays some familiar moving price patterns. Once the pattern is established, it is the most possible course of future price action until the time that market changes. Trending and trend-less are two types of market that are important for the beginner to identify. Each type of market has two specific patterns which trader can also notice over time. Trending (steady prolonged price movements with less than 45 degree angle with sudden pauses, resting periods or profit taking) can be uptrends (higher highs and higher lows type) and downtrends (lower lows and higher highs). And trendless market type (erratic movements of price that often steep greater than 45 degree angle and can’t sustain so must reverse) can be divided to choppy (erratic pattern with higher highs and lower lows) and sideways (narrow pattern with lower highs and higher lows).
Uptrend and downtrend days can show excellent results of trading; choppy market creates stop outs usually and sideways can produce little in both directions.
Volume is easy to follow when you know four rules of following Volume:
- When prices are about to go up and volume is about to increase, prices will continue rising. Uptrend is confirmed.
- When prices are about to rise, but volume is about to decrease, the uptrend may be near its end.
- When prices are falling and volume is about to increase, prices will continue falling.
- When prices are falling and volume is about to decrease, the downtrend may be near its end.
These are the rules of Forex chart reading and understanding the Forex technical analysis, but trader should remember that despite of reading the tutorials, first times of currency chart reading should be performed only with the help broker.
