For online forex trading, there are two basic approaches involved while learning to read Forex Charts, namely fundamental analysis and technical analysis. In the fundamental analysis approach, political and economic factors are used to determine trade trends and the charts are used as a reference only. Technical analysis studies the relationship between the price and the time by analyzing the historical price activity. This involves the prediction of forex price trends with reference to time.
Let s select the most traded pair of currencies, the US dollar and the Euro, as an example to illustrate the process. The dollar is placed on the right hand side of the chart while the Euro is on the left side and both are expressed in relation to each other during the pairing process. Forex charges involved indicate the amount of currency on the right side that is needed to buy a unit of the currency on the left side. The last price displayed on a given date is always highlighted on the chart. The time is recorded horizontally at the bottom of the chart while the price scale is displayed vertically on the right hand side edge of the chart. The time and prices are often displayed in caps to remind the trader that technical analysis is in progress and it involves relationship of price with reference to time, which is the fundamental rule of this type of analysis of relationships.
Many graphics like bars, lines, point and figure and Japanese candle sticks are employed to observe the price and time movements on a chart, the most popular one being the candle stick method. In this method, a fat red or green section represents the body of the candle stick while the lines protruding from top and bottom form the upper and lower wicks. The body size of the candle as well as the size of the wicks will be varying as per the price range for the candle. Longer candles indicate more price movements during its trading time. The top end of the wick indicates the highest and the bottom wick shows the lowest traded prices for that particular currency. A bullish trend of a candle or currency is indicated by the green color and by a higher closing price of the currency compared to its opening price, indicating a higher demand for the currency and a lower supply of the same. A candle with no wicks indicates continuously falling or rising prices for the currency after the opening of the candle’s time period.
Forex charts can be tools of immense help to a trader, though they are not coming in the category of sure fire methods. Many forex traders are regularly using charts to track historical trends, which has become quite popular in forex trading. Using charts to analyze these historical trends can be of great help in predicting the correct trends and making the right decisions at the right time.
Today, internet has enabled the traders to have access to on line charts, thus enabling them to stay abreast of the current and future trends on the currency prices. For the traders who are primarily doing their trading as per the historical trends, these online charts, which can be checked on a minute to minute basis, are of great help. Most forex traders prefer to use a combination of the two approaches that are mentioned above. While charting the historical trends, they keep their eyes and ears open to political, economic and cultural events within a country to enable them to predict the trends of their chosen currency with a better accuracy. Further, they employ charts and other methods to track down historical parallels for a particular political event and the associated behaviour of the currency during that occasion. This type of analysis and assimilation of information can lead to accurate predictions, as far as the trends are concerned. Instead of following a system blindly, a smart forex trader must hone his skills, at least in history and economics, so that he can enhance his ability to foresee the trends. If you want to be a successful and strong forex trader, you must collect all the necessary tools of the trade and use all of them in a timely and effective manner, to obtain optimum advantage.
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