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Article Series:
Learn Forex Trading / Currency Trading Tips
What
are Forex Charts &
How Do You Read Them?
When learning to read forex charts, remember
that there are two basic approaches for online forex trading.
They are fundamental analysis and technical analysis. Fundamental
analysis doesn’t rely on forex charts. It uses both political
and economic factors to help determine trades. Charts here
are only used as a reference. Technical analysis on the other
hand will try to predict where the prices are going by analysis
of historical price activity. Those who use technical analysis
study the relationship between price and time.
The most
traded pair of currencies is the Euro and the US
dollar, so we will use them in our example. The dollar is on
the right hand side of the chart and the Euro is on the left
hand side. The currencies are expressed in relationship to
each other in pairing. Forex charges will always display how
much of the currency on the right hand side is necessary to
buy a unit of the currency on the left hand side. Looking
at the chart you will notice the last price displayed on a given
date. This number is always highlighted. The time is recorded
horizontally across the bottom of a chart and the price scale
is displayed vertically along the right hand edge of the chart.
The time and the price are often in all caps to help the trader
remember that technical analysis is about the relationship
between time and price. That is a fundamental rule of this
type of relationship.
There are many ways to observe
the price and time movement on a chart. These include bars, lines, point and figure, and
Japanese candle sticks, the most popular method. With the candlestick
method there is a fat, red section that is the body of the
candlestick. Lines protrude from the top and bottom and they
are the upper and lower wicks. When you look at al the candles
on a chart it is clear that bodies can be difference sizes
and sometimes there is no body at all. The same is true with
wicks. Candle wicks can be of many difference sizes, or there
may be no wick at all. The length of the body and the length
of the wick are determined by the price range for the candle.
Longer candles will have had more price movement during the
time that they were open. The top of a candle wick is the highest
price for that currency while the wick’s bottom is the lowest
price. A candle or currency is bullish when the close of the
candle is higher than the open. In English this means that
there were more buyers than there were sales during the opening
time period. Sometimes the candles will not have wicks. The
price opened and it dropped off until it closed.
Forex charts are not
a sure fire method, but they are a tool
that can help a trader. Many forex traders use charts on a
regular basis. Historical trends do have their place in forex
trading as most traders will admit, and using the charts to
track historical trends can assist a trader in making a decision
today.
Often the charts are online rather than on paper. By joining
a service that provides the charts via the internet a trader
is able to stay very current indeed on currency activity. Charts
can be checked on a minute to minute basis. For those who primarily
do their trading based on historical accuracy this can be a
true help. Most forex traders however use a combination of
the two approaches. They may chart historical trends, but they
will also pay close attention to political, cultural and economic
events within a nation. They may also use charts or other methods
to check and see if a particular political event as a recent
historical parallel that can be checked to determine how the
currency behaved in past times. Simply following a system usually
is not enough. A trader should also be, somewhat at least,
a student of history and of economics. Using all the tools
at your disposal will make you a better and stronger forex
trader. # # # # # SolveYourProblem.com : 2007
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