The Basics of Using Forex Price Charts
by John Arnold
Someone said a forex trader without price charts is akin to a sailor without a compass. The action of currency pairs can be analyzed only with the assistance of price charts. These charts are considered as the primary tools necessary for any kind of market analysis.
They can be used by traders to compare historical data on currency rates and make educated future forecasts on the movement of currency pairs. Despite its importance, the most frequently asked question is usually about the best software which charts forex movement.
Unfortunately, there is no easy answer available. Every forex trader employs a unique trading style. Hence, everyone has their unique workflow or tools which help them in identifying the optimal trade opportunities at any given time.
Advantages of Using Forex Price Charts
As mentioned above, there are several types of charts which suit particular workflows or trading styles. Some of the advantages which can be attained by using them are as follows:
1. The provide a realistic visualization of the global forex market environment in real time.
2. Various market patterns and behavior can be identified by utilizing them.
3. Forex market analysis of a technical or fundamental nature can only be done with price charts as they are considered as the primary tools for such a task.
Some technical analysts focus on the occurrence of events and patterns of price changes which are already known. On the other hand, fundamental market analysts focus on making connections between price trends and macro events. These macro events can be sudden political changes or wide-ranging economic policies.
Utilizing Forex Price Charts
Any trader should be aware of some crucial concepts to make the most of price charts.
1. A solid understanding of support and resistance in relation to price movement is necessary for accurate analysis.
2. Need to be familiar with the patterns or market indicators which hint at a hold or break in the price level.
A trader can come up with a winning trading strategy very quickly once she/he is able to master these 2 concepts. To learn them quickly and efficiently, a trader should join a professional service which provides real time charts. These charts will include indicators as well as market analysis.
Various Price Charts Used
1. Line Charts: They are simple charts which focus on closing exchange rates for every trade period. They can easily chart support and resistance levels for various currency levels.
2. Candlestick Charts: They are the most popular charts in use right now. One can get a detailed picture of the market on a particular day in an easily understandable form. They display exchange rates (opening/closing and high/low) for any point in time. The color and length of the candles represent price movement and the price range for a specific time period respectively.
3. Point & Figure Charts: They are based on currency prices, but do not show the concept of time in a linear fashion.
4. Bar Charts: They provide at least 3 (price high/low/closing) rates at any point in time. Some versions might include the opening rates as well.
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