Have you heard of Candlestick Charts? It was developed by the Japanese rice traders in the 17th century to profit from rice trading. A picture is worth more than a thousand words. Forex charts are perhaps the best proof of this clich.
Appearance of certain chart patterns can give you priceless clue about the direction in which the market is about to turn. Traders have become very sophisticated in understanding charts and the information contained in them over time. Dont confuse the Head and Shoulder pattern with the name of a shampoo. Head and shoulder is an important trend reversal chart pattern.
Now you can predict the likely direction of the currency pair whether it be sideways, upward or downward by studying the patterns that appear on the forex charts. This field of study is known as Technical analysis. Without technical analysis, you wont be able succeed in forex trading. Technical analysis depends on the study of different types of charts to understand and predict the likely direction of the currency market.
There are four main types of forex charts that are used in the world of forex trading. The four main types of forex charts are: 1) Line Chart, 2) Bar Chart, 3) Candlestick Chart and 4) Point and Figure Charts (P&F Charts). A brief description of each one is given below.
Line Charts: This chart simply connect the closes from one period to another. The resulting chart resembles a line. A line chart doesnt show you where the currency pair opened for the period. It only shows where it closed. Nor does it points the high and lows for a period. So critical data is missing from a line chart!
Bar Charts: A bar chart shows the opening price of a currency pair, the closing price and the low and high price for each period. The bar chart can provide the hourly, daily, weekly and even monthly information. It is also often called the OHLC (open-high-low-close) bar chart. Bar chart addresses many of the shortcomings of the line chart.
A horizontal line protruding from the left of the bar represents the opening price of the currency pair. A horizontal line protruding from the right of the bar represents the currency pairs closing price. The periods high and low are the top and bottom of the bar.
Candlestick Charts: Overtime candlestick charts have become very popular among traders. There are many candlestick patterns that are used by the traders to predict the continuation or reversal of the trend. Traditional bar charts and the candlestick charts do almost the same thing. Both show the open, close, low and high price for a period. But candlestick charts do it more effectively. Candlestick chart clearly depicts the currency pairs open, high, low and close. A candlestick chart is made up of two components.
The real body of the candle is the range between the opening and the closing price of the currency pair. It is also called the candle body. The candlestick body is white if the currency pair closing price is above the opening price and it is taken as a bullish sign. Similarly the candlestick body is painted black if the closing price is below the opening price and it is taken as a bearish sign. The price movement above and below the body is called the shadows. It is also known as the candle shadows.
Point and Figure Charts (P&F): The main advantage of the P&F charts is that they filter out noise. The only downside is that they dont represent the time well. Point and figure charts plot the currency pair price using a column of Xs to represent rising price movements and Os to represent falling price movements.
The new plot is only made when the price exceeds the predetermined threshold by a fixed amount. The Xs and Os are plotted only when the currency price moves by a predefined amount. A plot may not be made if the currency price does not move significantly. - 29866
Appearance of certain chart patterns can give you priceless clue about the direction in which the market is about to turn. Traders have become very sophisticated in understanding charts and the information contained in them over time. Dont confuse the Head and Shoulder pattern with the name of a shampoo. Head and shoulder is an important trend reversal chart pattern.
Now you can predict the likely direction of the currency pair whether it be sideways, upward or downward by studying the patterns that appear on the forex charts. This field of study is known as Technical analysis. Without technical analysis, you wont be able succeed in forex trading. Technical analysis depends on the study of different types of charts to understand and predict the likely direction of the currency market.
There are four main types of forex charts that are used in the world of forex trading. The four main types of forex charts are: 1) Line Chart, 2) Bar Chart, 3) Candlestick Chart and 4) Point and Figure Charts (P&F Charts). A brief description of each one is given below.
Line Charts: This chart simply connect the closes from one period to another. The resulting chart resembles a line. A line chart doesnt show you where the currency pair opened for the period. It only shows where it closed. Nor does it points the high and lows for a period. So critical data is missing from a line chart!
Bar Charts: A bar chart shows the opening price of a currency pair, the closing price and the low and high price for each period. The bar chart can provide the hourly, daily, weekly and even monthly information. It is also often called the OHLC (open-high-low-close) bar chart. Bar chart addresses many of the shortcomings of the line chart.
A horizontal line protruding from the left of the bar represents the opening price of the currency pair. A horizontal line protruding from the right of the bar represents the currency pairs closing price. The periods high and low are the top and bottom of the bar.
Candlestick Charts: Overtime candlestick charts have become very popular among traders. There are many candlestick patterns that are used by the traders to predict the continuation or reversal of the trend. Traditional bar charts and the candlestick charts do almost the same thing. Both show the open, close, low and high price for a period. But candlestick charts do it more effectively. Candlestick chart clearly depicts the currency pairs open, high, low and close. A candlestick chart is made up of two components.
The real body of the candle is the range between the opening and the closing price of the currency pair. It is also called the candle body. The candlestick body is white if the currency pair closing price is above the opening price and it is taken as a bullish sign. Similarly the candlestick body is painted black if the closing price is below the opening price and it is taken as a bearish sign. The price movement above and below the body is called the shadows. It is also known as the candle shadows.
Point and Figure Charts (P&F): The main advantage of the P&F charts is that they filter out noise. The only downside is that they dont represent the time well. Point and figure charts plot the currency pair price using a column of Xs to represent rising price movements and Os to represent falling price movements.
The new plot is only made when the price exceeds the predetermined threshold by a fixed amount. The Xs and Os are plotted only when the currency price moves by a predefined amount. A plot may not be made if the currency price does not move significantly. - 29866
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!
