Forex technical analysis is one of two ways to analyze the foreign exchange markets. It works by studying the movement of prices, while the other method, fundamental analysis, looks at external economic factors such as the strength of the national economy, political events and so forth.
Technical analysis is based on analyzing chart patterns. Ideally you need to look at past chart data and recognize the patterns that precede or follow the trends. Once you learn to recognize the patterns you will be ably to predict the future price movement to some extent.
There are three types of Forex charts:
- The line chart is the first one
Line charts simply plot each closing price and join them with a line. The rise and fall of the line shows the general movement of a currency pair. However, it does not show movements within the trading period, only the close.
2. Bar charts
A bar chart will show a series of vertical lines or bars. The top of the line represents the highest price during that time period. The bottom of the line represents the low. A short horizontal bar on the left side indicates the opening price and a short horizontal bar on the right side indicates the closing price.
Since they show the open, high, low and close, bar charts are also sometimes called OHLC charts.
- Third type of charts is candlestick chart
Candlestick chart gives the same information as bar chart. The only difference is that candlestick chart gives better visual representation of price tendency inside the time period.
You have the same vertical line with the high at the top and the low at the bottom, but there is also a wide block in the middle showing the gap between the opening and closing price. The blocks will be filled white (for a rising price) and black (for a falling price) or more often these days they are colored. Colors can vary but a common combination is green or blue for rising and red for falling.
Most people prefer candlestick charts over bar charts because they are easier to interpret. It is much easier to see turning points in the market using candlestick charts. You can immediately see where the market reversed from an upward to a downward trend and vice versa.
When you see a trend forming, you can make money by trading in the same direction as the emerging trend. 'The trend is your friend', as currency traders say. For this reason, identifying the trend is the most important thing to learn inForex technical analysis and using candlestick charts is probably the easiest way to do this.
Technical analysis is based on analyzing chart patterns. Ideally you need to look at past chart data and recognize the patterns that precede or follow the trends. Once you learn to recognize the patterns you will be ably to predict the future price movement to some extent.
There are three types of Forex charts:
- The line chart is the first one
Line charts simply plot each closing price and join them with a line. The rise and fall of the line shows the general movement of a currency pair. However, it does not show movements within the trading period, only the close.
2. Bar charts
A bar chart will show a series of vertical lines or bars. The top of the line represents the highest price during that time period. The bottom of the line represents the low. A short horizontal bar on the left side indicates the opening price and a short horizontal bar on the right side indicates the closing price.
Since they show the open, high, low and close, bar charts are also sometimes called OHLC charts.
- Third type of charts is candlestick chart
Candlestick chart gives the same information as bar chart. The only difference is that candlestick chart gives better visual representation of price tendency inside the time period.
You have the same vertical line with the high at the top and the low at the bottom, but there is also a wide block in the middle showing the gap between the opening and closing price. The blocks will be filled white (for a rising price) and black (for a falling price) or more often these days they are colored. Colors can vary but a common combination is green or blue for rising and red for falling.
Most people prefer candlestick charts over bar charts because they are easier to interpret. It is much easier to see turning points in the market using candlestick charts. You can immediately see where the market reversed from an upward to a downward trend and vice versa.
When you see a trend forming, you can make money by trading in the same direction as the emerging trend. 'The trend is your friend', as currency traders say. For this reason, identifying the trend is the most important thing to learn inForex technical analysis and using candlestick charts is probably the easiest way to do this.
