Winning strategies with Forex Charts

As you read forex charts, remember that the two

fundamental approaches for online forex trading:

fundamental analysis and technical analysis.

Fundamental analysis doesn’t rely on forex charts. It

scrutinizes political and economic indicators to determine

trades. Charts here are deployed as used as a secondary

reference.

Technical analysis on the other hand, attempts to predict

price swings by analysis of historical price activity. Those

who use technical analysis study the relationship between

price and time.

The most actively traded pair of currencies is the Euro and

the US dollar, so we will use them in our example. The

dollar is on the right hand side of the chart and the Euro is

on the left hand side. The currencies are expressed in

relationship to each other in pairing. Forex charges will

always display how much of the currency on the right hand

side is necessary to buy a unit of the currency on the left

side. Looking at the typical EU-USD, chart you will notice

the last price displayed per given date. This number is

always emphasized. The time is tabbed horizontally across

the bottom of a chart and the price scale is displayed

vertically along the right hand edge of the chart. The time

and the price are set in all caps to help the trader remember

that technical analysis rests upon the relationship between

time and price.

The trader observes the price and time movement on a

chart. These include bars, lines, point and figure, and

Japanese candle sticks-- the most favored method. With

the candlestick method there is a large, red section that is

the body of the candlestick. Lines protrude from the top

and bottom and they are the upper and lower wicks. When

you look at all the candles on a chart it is apparent that

bodies come by difference sizes. Sometimes no body exists

at all.

The same is true with wicks. Candle wicks come by many

difference sizes; there may be no wick at all. The length of

the body and the length of the wick are determined by the

price range for the candle. Longer candles will have had

more price movement during the time that they were open.

The top of a candle wick is the highest price for that

currency while the wick’s bottom is the lowest price. A

currency is bullish when the close of the candle is higher

than the open. In simple terms this means that there were

more buyers than there were sales during the opening time

period. Sometimes the candles will not have wicks. The

price opened and it dropped off until it closed.

Forex charts don’t offer bullet proof trading hints, but they

can help a trader. Past trends do have their place in forex

trading as most traders will admit, and using the charts to

track historical trends can assist a trader in making a snap

decision.

The online investor typically joins a service that provides

realtime charts that updates on currency activity. Charts

can be checked on a minute to minute basis. For those who

primarily do their trading based on historical accuracy this

can ease the burden of prediction.

Most forex traders however use a combination of

fundamental and technical analysis. They may chart

historical trends, but they will also pay close attention to

political, cultural and economic indicators within a region.

They might use charts and other techniques to check

correlation between political climate and currency

fluctuations. But even the most sophisticated technical

analysis software or tool has its limitations. A trader must

be prepared to take risks… and invest money that is not

needed for the immediate future.

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