Foreign exchange Chart Types And Techniques
March 11th, 2010
Knowing how to employ a foreign exchange chart is critical for the forex trader. While the foreign exchange market is clearly driven by industrial (i.e. Fundamental) factors, most traders like to make their trading calls on the basis of charts and indicators, since these are open to anybody and do not require a deep appreciation of world economics. That is especially true when Forex traders use alerts like MT4 Alert.
The first point in lining up your technical analysis tools is to make sure that you are using the kind of currency exchange chart that fits you best. All forex trading charts show price movements for a currency pair but you can change how you view them. There are three basic types of chart:
1. Line charts
Line charts simply show the closing price for each period. You might set this to show the closing price at the end of each minute, the end of every day or many different periods between. This could give one point for each period and these are joined by a line to show the direction of the price movement.
Line charts can be helpful if you need a quick top level view of a trend. However, they don’t give much info so very few traders would base a trading programme on line charts.
2. Bar charts
Bar charts give four times as much information as a line chart. As well as the closing price, given as a notch on the right of the bar, they show the opening price with a nick on the left, and the high and the low (top and bottom points of a vertical line).
having the ability to see the range of movement within a period can be really handy. It can give a suggestion of volatility of the currency pair, and in a number of cases, indicate when a retracement might be about to occur.
3. Candlestick charts
Candlesticks are the hottest sort of currency exchange chart. They show the high and low for the period in the same way as a bar chart, but the open and close costs are shown by the range of the candle body. If the open is higher than the close, i.e. The price dropped in the period, the candle will be shaded in a white/shaded system or red in a green/red coloured system. If the close was higher than the open, i.e. The price increased in the period, the body of the candle will be white or green.
The shading or color makes it simple to see the direction of price movement at a peek. The scale of the candle body makes it similarly straightforward to see the range of movement between the open and close. This is very useful when looking for patterns in currency price movements. It makes it straightforward to spot trends, troubled markets and retracements.
Whatever sort of forex chart you use, you will be able to alter the time period that point, bar or candle covers. This lets you see price movements over a longer period or focus in to view the changes every minute. Many traders will use a second time period in the chart to check that their signal is not contradicted with a different chart setting. Naturally, you may also use other technical analysis tools such as indicators to verify your call before placing an order on the basis of your foreign exchange chart reading.
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