Technical analysis is the idea that the past will repeat itself and if a trader is able to read chart formations, they will be able to predict what the market will do next. Currency charts are not any different then stock charts. If you have traded stocks before and are comfortable with how to read those formations, then reading Foreign Exchange charts will be very easy. This is one way to develop Forex strategies.
How to understand the lines on a chart, each day it will have a vertical line, which represents the highest and lowest the currency sold for on that day or period. With currency trading, 5-minute updates are also available. The horizontal line to the left of the vertical line represents the opening price and the horizontal line to the right of the vertical line represents the closing price. This can also be described in a candlestick formation. The candlestick formation has a box that is either filled or empty with a stick out the top and bottom. Many investors consider a candlestick formation much easier to read. The box of the candlestick is empty if the beginning price is lower then the end price, if the beginning price is higher then the end price, the candlestick box if filled. This allows the investor to visually tell how the market is moving. If each box is empty then that means the price has been moving up. If each box is full, it means the price has been declining. This allows an investor to simply identify a trend that may be forming.
The easiest trend to spot on a Fx currency chart is an uptrend or a downtrend. A strict uptrend has each candlestick opening lower and closing higher. A general uptrend is going upward but does not necessarily have higher highs each period. This also holds true for a downtrend. A strict downtrend opens higher and closes lower for each period. A general downtrend has prices going down but not necessarily every price period. Many traders usually concentrate only on the open price and the close price. The fluctuation between the open and close for that period does not interest numerous investors.
Support and resistance lines are the next chart formation that a novice investor should become accustomed to. A support line is a bottom or the floor where prices may fall down to but they seem to rebound from. Resistance line is the top or the ceiling where prices move up to but seem to fall when they get near that line. The prices do not have to stay near these lines. There could be numerous up and downs almost like a bouncing ball, where the line is reached but never crosses. This can happen over minutes, hours, days, weeks, months, and years. It depends on the type of investor you are as to what cycle you will look at when deciding the signifinance of a support or resistance line. The interesting thing about these support and resistance lines is that when prices have crossed them, they continue to move in that direction for a while. Numerous traders will identify a support or resistance line, then wait for the prices to break those lines before they enter a trade.
These are the two main chart formations that any investor should be familiar with before they begin their investing in the Forex. I will continue with future articles which will get into some specific chart formations and what they can indicate to you the Forex trader.
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My name is Scott Tomiko. I am writing this article to present information about the Fx. The Fx has many different sections of information that, I believe, a trader should understand. I will be writing articles that will cover many aspects of the Foreign Exchange market. I believe that once you, the trader, know the Foreign Exchange market you will want to begin trading. I also have posted an analysis of a software forex program that will increase your capacity to trade the Forex effectively. My website contains more Forex education articles along with my Forex Robot review.
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