Currency charts are good tools to determine at a glance the price patterns of currencies
on a specific time scale. Because a currency chart is a graphic information organizer
that displays tabular numeric patterns and data, it would be very easy for analysts
to see market moods, trends and signals.
If you are just starting a career in currency trading or if you want to become an
analyst guru of the foreign exchange market, it would be best then to understand
and have a firm grasp of different types of currency charts and chart patterns.
Just like any other technical analysts, you will rely mainly on currency charts
to help you in your trading practices or to make definitive conclusions on the behavior
of the currency market.
The Best Technicians’ Tool
Actually, technical analysts of the foreign exchange market, most often than not,
always base their analysis, conclusions and decisions on currency charts. They do
not care about market fundamentals and they bury themselves beneath numerous charts,
tables, graphs, and other mathematical and statistical tools.
Technical analysts are convinced that the market fundamentals are already reflected
in the prices of the currencies. Because of this, there is no need to delve deeper
into the socio-economic and political fundamentals of countries. All that is needed
is a keen and meticulous analysis of the history of currency price movements to
determine the future direction of the market. Technicians always assume that the
fundamentals are already factored in the market data. They also advance the idea
that past market history will almost always repeat itself and that prices are always
moving in trends. So, the foreign exchange market will be fairly predictable when
you take into account all these factors and past and present market data can be
easily quantifiable to determine future movements.
That is why the use of currency chart is a must for technical analysts. The advantage
of using currency charts lies in its easy applicability, portability, and quicker
interpretation. You can always make a currency chart manually on paper or through
chart application software on your computer. On our trading platform a full comprehensive
charting package is included. As long as you have the necessary data on hand, currency
charting can be a very easy task. You now have a powerful tool in your hands to
make solid market decisions and to guide your currency trading strategies.
Different Types of Currency Charts
Currency charts come in many types. The simplest and probably the easiest to interpret
is the line currency chart. Line charts only depict the movements of currencies
based on the closing price. The data needed in a line currency chart is only the
price of the currency at the close of a trading period (minute, hour, day, week
etc). This type of chart will not show you what happened during the entire trading
period because only the closing prices are plotted. Some traders only look at the
closing prices to set up their support and resistance levels. Although very basic
it can still give you a pretty clear picture of the market.
The currency chart most popularly used by traders and analysts is the bar chart.
A bar currency chart will reflect all the data during the entire trading day. It
will include the closing, the high and low price on any given time plot. The high
price is reflected on top of the bar while the lows are plotted on the bottom of
each bar. Closing and opening prices are reflected by a small horizontal dash crossing
the bar. If the price closes higher the horizontal dash will be plotted on the right
of the bar above the opening dash which will be on the left of the bar. The bar
chart provides a better picture of the full range of price movements within a period
(minute, hourly, daily etc) and emerging trends are easier to spot.
The Japanese discovered the candle stick currency chart some three centuries ago.
It was used by ancient Japanese futures traders long before the West developed the
modern charts being used today. Some foreign exchange traders prefer to use the
candle stick because they find it easier to use and understand. Candle sticks currency
chart will reflect the opening, closing, high, and low prices of any given trading
day or week. The body of the candle stick reflects the opening and closing price
of the trading day while the line above is the highs and the line below is the lows.
The lines are called shadows. Candle charts reflect the same information as bar
charts but are presented in a color coordinated way for simpler viewing (usually
red body depicting a negative period and green body depicting a positive period).
Be a Winner by Spotting Specific Market Indicators
Currency charts can also show important market indicators. These technical indicators
play a vital role in determining price patterns and to predict the behavior and
mood of the market over a period of time. There are hundreds of technical indicators
out there but generally can be categorized as follows:
Trend indicators show the determined movement of price over time.
It could be upwards, downwards or sideways. Your market decisions can be helped
greatly by these trends because prices normally follow a strict market direction
in a given time frame.
Strength indicators show the forceful behavior of the market in
relation to currency prices. It depicts the moods of the traders by displaying the
market volume.
Volatility indicators display the amount and frequency of currency
fluctuations. It is an established assumption that volatility changes will result
to price movements whatever trend the market is taking.
The support and resistance indicators on the other hand are attributed
to the behavior of supply and demand side of the market. It will show the price
levels of the market and its continued rising and falling and subsequent reversals.