Forex Price Charts, what DO they mean and HOW to use them?

Vital numerous facts as discipline, trading rules, not being greedy etc., but one of the most vital things is:

LEARN to read the charts as Charts represent the means of support of the market.

I admit that reading charts, and interpreting patterns, are more an art than a skill. Base and apply your entry and exit decisions on YOUR OWN combined methods of technological and fundamental analysis.

FOREX charts, are simpler to interpret and to use. They reflect a slower moving, stable nation of a country, compared to the stock market, with its daily drama of company reports, Wall Street Analysts and shareholder hassle.

Unlike stocks, currency charts do not spend much time in trading ranges and have the tendency to develop strong trends. Furthermore, Forex with its 4 Mayor currencies is simpler to analyze than tens of thousands of stocks.

(Mayor currencies are: USD/JPY, EUR/USD, GBP/USD and USD/CHF)

Appreciative just a few basic points about the technological analysis of currency chart can lead to augmented profit potential.

Pricing – Price reflects the perceptions and action taken by the market participants. It is the dealing between buyers and sellers in the Over-The-Counter (OTC) or “interbank” market that makes price movement. Therefore, all fundamental factors are quickly discounted in price. By studying the price charts, you are indirectly seeing the fundamental and market psychology all at once , after all the market is fed by two emotions – Greed and Dread – and once you know that, then you start to know the psychology of the market and how it relates to the chart patterns.

Data Window Chart – FCM and most online charting stations, when you click on a price bar or candlestick, it will show a small box of data usually called a show window which will contain the later items:

H = Highest Price
L = Lowest Price
O = Notch Price
C = Close Price (or Last Price)

The most common types of price bars, used in FOREX trading, are the Bar Chart and the Candlestick chart:

Bars Charts -

Price bars are a linear representation (a line) of a period of time. This enables the viewer to see a graphic representation summarizing the activity of a specific time frame. As an example, I use 10 minutes, 60 minutes and daily time interval for my systems. Each bar has similar characteristics and tells the viewer several vital pieces of information.

Initially, the highest point of the bar represents the highest price that was achieved during that time period. The lowest point of the bar represents the lowest price during the same period. Regular bars show a small dot on the left side of the bar which represents the notch price of the period and the small dot on the right side represents the closing price of the period.

Candlesticks – Japanese Candlesticks, or simply Candlesticks as they are now known, are used to represent the same information as Price bars. The only difference is that the difference between the open and close form the body of a box which is showed with a affect inside. A red affect means that the close was lower than the open, and the blue affect represents that the close was higher than the open.

If the box has a line going up from the box it represents the high and is called the wick. If the box has a line going down from the box, it represents the low and is called the tail.

Many interpretations can be made from these “candlesticks” and many books have been written on the art of interpreting these bars.

Chart Intervals & Time Frames:

A chart Time Scale & Period, or time frame, basically refers to the duration of time that passes between the OPEN and the CLOSE of a bar or candlestick.

For instance, with your broker software, you will be able to view a currency pair, in a 1-hour time frame over a 2-day period, 5-day period, 10-day period, 20-day period and 30- day period.

Most of the small-term time intervals (5-min and 1-min charts) are used for entry and exit points and the longer- term time intervals (1-hour and daily charts) are used to see where the general trend is.

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Filed under: Forex Trading ABC

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