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Forex Technuques - Forex Trading Strategies Planning - READING FOREX CHARTS
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How To Trade E-Currency Information
Forex Technuques - Forex Trading Strategies Planning - READING FOREX CHARTS
Price charts can be simple line, bar or even candlestick graphs. They show prices during specified time intervals that can be anywhere from minutes to years.
Line charts are the easiest to read, they give a broad overview of price movement. They only show the closing price for the specified interval and make it easy to pick out patterns
and trends.
With a bar chart the length of a line displays the price spread during the time interval. The larger the bar, the greater the price difference between the high and low price for that interval. It is easy to tell at a glance if the price rose or fell, because the left tab shows the opening price and the right tab the closing price. Then the bar will give you the price variation.Pprinted bar charts can be difficult to read but most software charts have a zoom function so you can easily read
even closely spaced bars while mapping out your Forex trading strategies.
Candlestick charts are very similar to bar charts - they both show high, low, open and closed prices for indicated time periods. Originally developed in Japan for analyzing candlestick contracts, they are very useful for analyzing Forex prices and are therefore a handy "tool" in Forex trading strategy planning. However the color coding makes it easier to read the chart, green candlestick indicates the rising price and
the red - the falling price.
The actual candlestick shape in reference to the candlesticks around it will tell you a lot about the price movement and will greatly aid your analysis. Depending on the price spread various patterns will be formed by the candlesticks. Many of the shapes have exotic names, but once you learn the patterns, they are easy to pick out, analyze and use while working out your Forex trading strategies.
Price charts are not usually used alone. To get the full effect, you need
to combine them with some technical indicators: trend, strength, volatility and cycle indicators. The most commonly used indicators are:
Average Directional Movement Index (ADX)
helps indicate if the market is moving in a trend in either direction and how strong the trend is. If a trend has readings in excess of 25 then it is considered a stronger trend. Effective "tool" when planning your Forex trading strategies.
The Moving Average Convergence/Divergence (MACD) shows the relationship between the moving averages which allows you to determine the momentum of the market. Any time that the signal line is crossed by the MACD it is
considered to be a strong market.
The Stochastic Oscillator compares the closing price to the price range over a specific time frame to determine the strength or weakness of the market. If a currency has a stochastic of greater than 80 it is considered overbought. However, if the stochastic is under 20 then the currency is considered undersold.
The Relative Strength Indicator (RSI) is a scale from 1 to 100 that compares the high and low prices
over time. If the RSI rises above 70 it is considered overbought where as anything below 30 is considered oversold.
The Moving Average is created by comparing the average price for a time period to the average price of other time periods.
You can use these indicators to map out successful Forex trading strategies.
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Premium - In the currency markets, describes the amount by which the forward or futures price exceed the spot price.
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