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 Forex Trading Charts Education
 
 
 

Reading Forex Charts

Forex Trading Price Charts can be simple line graphs, bar graphs or even candlestick graphs. These are graphs that show prices during specified time frames. These time frames can be anywhere from minutes to years or any time interval in between.

Forex Trading Line charts are the easiest to read, they will show you the broad overview of price movement. They only show the closing price for the specified interval, they make it very easy to pick out patterns and trends but do not provide the fine detail of a bar or Forex Trading candlestick chart.

With a Forex Trading bar chart the length of a line displays the price spread during that time interval. The larger the bar is the greater the price difference between the high and low price during the interval. It is easy to tell at a glance if the price rose or fell because the left tab shows the opening price and the right tab the closing price. Then the bar will give you the price variation. When printed Forex Trading Bar Charts can be difficult to read but most Forex Trading Software Charts have a zoom function so you can easily read even closely spaced bars.

Originally developed in Japan for analyzing candlestick contracts candlestick charts are very useful for analyzing Forex prices. Forex Trading Candlestick Charts are very similar to Forex Trading Bar charts they both show the high, the low, open and close price for the indicated time. However the color coding makes it much easier to read a Candlestick Chart, normally a green candlestick indicates a rising price and a red one indicates a falling price.

The actual Candlestick shape in reference to the Candlesticks around it will tell you a lot about the price movement and will greatly aid your analysis. Depending on the price spread various patterns will be formed by the Candlesticks. Many of the shapes have some rather exotic names, but once you learn the patterns they are easy to pick out and analyze.

Forex Trading Price Charts are not usually used by themselves to get the full affect you need to supplement them with some Forex Trading Technical Indicators. Technical indicators are normally grouped into some pretty broad categories. Some of the more common ones used to monitor and track the Forex Trading market movement are: trend indicators, strength indicators, volatility indicators, and cycle indicators.

To get Forex Trading Free charts,  Please visit our Forex Charts Page.

Here is a list of some of the more commonly used indicators as well as a brief description:

Average Directional Movement Index (ADX) – This index will help indicate if the market is moving in a trend in either direction and how strong the trend is. If a trend has readings in excess of 25 then this is considered a stronger trend.

Moving Average Convergence/Divergence (MACD) – This shows the relationship between the moving averages which allows you to determine the momentum of the market. Any time that the signal line is crossed by the MACD it is considered to be a strong market.

Stochastic Oscillator – This compares the closing price to the price range over a specific time frame to determine the strength or weakness of the market. If a currency has a stochastic of greater than 80 it is considered overbought. However if the stochastic is under 20 then the currency is considered undersold.

Relative Strength Indicator (RSI) – This is a scale from 1 to 100 to compare the high and low prices over time. If the RSI rises above 70 it is considered overbought where as anything below 30 is considered oversold.

Moving Average – This is created by comparing the average price for a time period to the average price of other time periods.

Moving Averages Basics

Among the important concepts a new Forex trader should know is what a Moving Average means, how this indicator is calculated and its use as a trading tool.

A “Moving Average” is a Technical indicator that shows the average value of a particular currency pair over a previously determined period of time. This means, for example, that prices may be averaged over 20 or 50 days, or 10 and 50 min depending on the time frame that is more convenient for you at the moment of your trading activity.

Moving Averages are an averaged quantity and can bee seen as a smoothed representation of the market activity at the moment and it’s an indicator of the major trend influencing the market behavior.

This smoothing effect of the Moving Average is very helpful when the trader is looking for getting rid of the “noise” in the price fluctuations of the currency pair he is trading at the moment and a more precise emphasis in the trend direction is required.

The mechanics of how Moving Averages can tell a Forex trader where the Forex Trading market is moving (up or down) is by considering two different time frame Moving Averages and then plotting them on a forex chart. It is very important that one of these MA is over a shorter time period than the other one; let’s say one will be over a 15 days period and the other over a 50 days period.

Once you have plotted the two Moving Averages with your Forex Trading charting software (available from most internet Forex Trading brokers), you will notice points of crossover where the shorter time period MA will cross above the longer time period MA indicating an upward trend in the Forex Trading market, or if the crossing is below the longer period MA that will be an indication of a down trend in the Forex Trading market.

So by using this simple concept of the Moving Averages you can start understanding the basics of confirming trends when checking your Forex trading charts during your particular trading hours.

Moving Average Convergence Divergence

 MACD is a more detailed method of using Moving Averages to find Forex Trading Signals. This indicator was developed by Gerald Appel, the MACD plots the difference between a 26-day exponential moving average and a 12-day exponential moving average. A 9-day moving average is generally used as a trigger line, this means that when the MACD crosses below this trigger it is a bearish signal (time to sell) and when it crosses above it, it's a bullish signal (time to buy).

This indicator will help the Forex trader using MACD studies to have an early signal of what the Forex market will do next. When the MACD turns positive and makes higher lows while prices are still tanking, this is usually a strong buy signal. Conversely, when the MACD makes lower highs while prices are making new highs, this could be a strong bearish divergence and a sell signal.

The other indicator, RSI, stands for Relative Strength Index. The RSI indicator measures the markets activity as to whether it is over bought or over sold. It gives a Forex trader an indication of which way the Forex Trading Market is moving at the moment. It is important to note, that this is a leading indicator and thus allows one to see what the market is about to do next and then act accordingly in order to have gains. The higher the RSI number, the more over bought it is and conversely the lower the RSI number, the more over sold it is. It is a great leading indicator for the micro and macro reversals in the forex Trading market.

This Forex Technical Indicator was developed by Welles Wilder to help investors gauge the current strength of a stock's price relative to its past performance. The usefulness of this Indicator is based on the premise that the RSI will usually top out or bottom out before the actual market top or bottom, giving a signal that a reversal or at least a significant reaction in stock price is imminent.

The main purpose of the RSI is to measure the market’s strength and weakness. A high RSI, above 70, suggests an overbought or weakening bull market. Conversely, a low RSI, below 30, implies an oversold market or dying bear market.

But RSI does not indicate a top or a bottom. Sometimes overbought market will be followed by little downward correction in order to gather momentum so it could go up much further. And sometimes oversold market will be followed by little upward correction in order to gather momentum so it could go down much further.

To get Forex Trading Free charts,  Please visit our Forex Charts Page.

Japanese candle sticks

Japanese Candlesticks are the most animated way to observe price movement. It records the price movement on Forex Charts in effect drawing a clear picture for Forex traders to study. Japanese candlesticks also known as sign language of the Forex market. In Candlestick charts, as in many other charts, you get the open, close, high and low of the online Forex prices.

One of the biggest advantages of Forex Candlestick Charts is when you only take a glance; you can observe a lot of information about the online Forex currency movement. Most importantly, you can notice the difference between the open and close prices of the online Forex. If you notice a red Candlestick, it can serve as a warning about the direction of the Currency price. The fat red section is the body of that Forex Candlestick. The lines protruding from the top and bottom are the upper and lower wicks. The very top of a candles wick is the highest price for that candle while the bottom of the wick is the lowest price for the candle.

Forex Candlestick charting is great for Forex traders wanting an extra edge in their quest for profits - this is due to the way the candle bodies are drawn, that gives a better insight that is visual, and shows Forex trader psychology.

More Forex traders than ever are using Forex Candlestick charts due to the extra trading edge they can get with this form of Forex charting - if you have not used them before, then this article is for you.

Forex Trading Candlestick charts are not new, and have been used for hundreds of years by Japanese traders to predict and act on market movements.

Forex Trading Candlestick charting giving greater insight into human psychology

In the 1700's, Homma, a Japanese trader in rice, noticed how the price of rice was influenced by human psychology as much as the supply and demand situation. Homma used candlestick charts to trade rice and amassed a huge fortune in the markets. In fact, it was rumored he never to have had a single losing trade!

Human psychology has never changed, and has remained constant over time – Forex Trading Candlestick charting is therefore just as useful today, as it was hundreds of years ago.

The Re-emergence of Candlestick Charting

Steve Nison, book, "Japanese charting techniques," bought Candlestick charting back into the public domain in the 1990s. Currency traders soon started using Forex Candlestick charting instead of Forex bar charts for greater insight into market movements

To get Forex Trading Free charts,  Please visit our Forex Charts Page.


So why use Candlestick Charts?

1. They complement other Technical Tools

You can use Forex candlestick charts as you would use the common Forex Bar chart, and you can combine them with traditional market indicators. Forex Candlestick charts are a great way to spot opportunities, and then filter, and time trades with other indicators.

2. Spotting trend changes

Because of the way Forex Candlestick charts are viewed, they can give warnings of market reversals, far more visually than traditional bar charts. If you look at candlestick charting, the human psychology of the move literally jumps out the page at you.

3. Straightforward to use

Forex Trading Candlestick charts use, the same open, high, low and close data that traditional Forex Trading bar charts use, and are easy to draw. In addition, there are many packages like super charts and trade station that will draw them automatically for traders. The different candle names are also easy to remember.

4. Define market momentums

The way the Forex candlestick chart is drawn not only gives the direction of price, but also the momentum behind the move. The Forex Trading Candlestick chart graphically illustrates the relationship behind the open, high, low, and closes by the body - and adds an extra visual edge, due to the way they are drawn.

The Forex Trading Candlestick has a wide part, called the "real body." This real body represents the range between the open and close of that day's trading. When filled in black, the real body means the close was lower than the open.

If the real body is empty, it means the opposite - the close was higher than the open.

Above and below the real body we see the "shadows." We see these as the wicks of the candle (which give them their name), and the shadows actually show the high and the low of the day's trading.

A Visual Aid to Give You an Edge

Forex Trading Candlestick charts should be used rather than traditional bar charts because they give you an extra visual dimension.

Regardless, of whether you are a Forex day trader, Forex position trader, Forex system trader or a Forex trader who likes to make your own trades, there is really nothing to dislike about candlestick charts!

Easy and fun to use, and providing a greater insight into Forex market moves, along with the ability to use in any type of Forex Trading, means if you aren’t already using Forex Trading candlestick charting, then its time to start.

To get Forex Trading Free charts,  Please visit our Forex Charts Page.

 
 
 

 

 
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