Have you thought about forex trading? Do you get lost in the jargon? Well, not to worry as we have broken down one of the best ways to improve your trading. Forex charts may or may not be something you are familiar with, however, if you are serious about making money from trading then taking the time to understand them could be your secret weapon!
The charts used in forex can be very useful tools for traders, and the most experienced and successful among them use them extensively. When combined with fundamental analysis and technical analysis indicators, they can provide a clue to future market trends, helping traders to get ahead of the game. Many people see forex as a form of gambling, just like trading other commodities such as gold or stocks. However, ask anyone who actually does it for a living and they will tell you it’s a game of analysis, maths and precision.
So what charts will help trade forex?
The most widely used chart types are line, bar and candlestick. If you’re looking to enter the forex market, possessing a basic understanding of these can provide you with a major advantage.
One of the simplest types of forex chart is the line chart. This plots a single factor: the closing price at the end of each day. The date is displayed along the ‘x’ axis, with its ‘y’ counterpart indicative of price. The line chart’s beauty lies in its simplicity; it offers an immediate visual clarification of price trends over a set period of time, which can help traders to assess whether circumstances are right for a trade, and the amount of risk that would be inherent in such an action.
Bar charts are the most popular form of security chart. They contain visual data on opening, high, low and closing prices for a security over a given period of time. The top of a vertical bar indicates the maximum price that a security has traded for within the set timeframe. The bottom of the bar represents the converse; the lowest price traded at. Where opening prices are available, a tick on the left-hand side of the bar denotes these. A tick on the right side shows the last price that the security traded at during the specified period. This information is incredibly useful to traders, indicating trends, prices, market volumes and associated risks.
Candle Stick Charts
Brightly coloured candlestick charts offer an immediate visual representation of market trends. Each individual candlestick on a chart indicates information relating to a set period, whether this is as little as a minute or as long as a day. The data they contain displays open, high, low and closing prices in a format that is not dissimilar to bar charts. However, it adds an extra dimension to this, offering an insight into the relationship between the opening and closing prices of a security. This form of chart is a relatively new method of analysis but a highly useful one, as it provides a quick and easy way to assess prices without requiring complicated calculations on the part of the trader.
Once these 3 charts become your bread and butter, it’s time to start to complement these with other more advanced tools and resources. Online calculators and economics calendars are very useful to assist trading.