The Importance of Forex Technical analysis and Charting!

In order to see a trend of a certain economy, it is importance you read the dollar fluctuations that is happening every day, week and month. Technical analysis is a method used to predict the dollar movements and future currency trends by using past data and also by studying relevant charts.

It is mainly base on what has actually happened to the Forex market and using the charts that has been created taking into accounts the prices and volume of trading during those periods. The primary factor that is focused here is the money movement instead of looking at side factors (e.g. political, oil prices…etc) that is affecting the currency change.

The timeline provides a visual analysis so that you can use to predict future trends base on the history. Whether you’re into futures, commodities, stocks and so on, Forex Technical Analysis is the most versatile way and probably the most successful way to forecast the way you trade as the patterns indicated by chart reading gives you hard “Past” details leaving you a workable trail to follow.

Forex Charting is certainly one of the most wider used methods of trading in the Foreign Exchange market as the old saying goes….a picture is worth a thousand words. Instead of using only numbers (e.g Fibonacci and Gann), you’re getting visual support from real-time statistics.

Here are a few common charts used in Forex Trading:

CandleStick – This type of chart was first invented by the Japanese and has only become common in the western countries in the last couple of years. It allows easy comparison of equity and asset prices base on the trends of certain period. Basically, each candlestick consists of a vertical rectangle which indicates the opening and closing of the trading terms. The rectangle can be either black or while providing hard stats on whether the day’s trade is undervalued or over. The constellations or the pattern of candlestick charts provides the range of trades that have happened and because these are reliable data, more and more experts are using this method as a primary way to charting.

Bar Charts – If you have been trading FX in short time frames, then bar charts provides just the data you need, normally within the hour period. However, since the technology has advanced so much in the last couple of years. Many bar charts were created to provide even smaller time intervals (e.g 30mins, 15mins, 5mins, 1min and so on…). By using bar chart, you can easily analyze the opening and closing price of a trade in certain periods of the day.

Point & Figure – In this form of charting, you will see many “X” and “O” that represents the graphical data showing you the highs and lows within a certain trading period. The “X” indicates the appreciation of the price while the “O” represents the depreciation of the price value. The size of the box determines the length in time interval of the trade.

Kagi Charts – This type of chart is setup by using green and red lines to indicate the strength of the market trend and is mainly used to indicate the supply and demand of an instrument. If you see the green line, it means that there is more demand then supply, hence indicating that the market is moving up in trend. If you see red line on the other hand, it means the market trend is moving down and that there are more supply then demands. In this type of trading, your goal is to find the reversal amount that is high because it means you’re likely to profit from the instrument. Otherwise, it may be the best option to end the trade as soon as you can.

There are also many different types of Forex Charts you can find on the market including one of the commonly used “Three Line Break” which helps determine whether you should enter or exit a trade. Through studying charts by by using your Forex technical analysis skills, you can easily reduce your risks as you have proven data to guide you and a history to follow so that you don’t make the mistakes that many day traders do.