Technical Analysis - Forex Charts (Module 5)
In our previous module, we've discussed where traders buy and sell currency and what are the market hours available within the whole 24 hours (weekdays only). In this module, you are to learn one of the most vital technical analysis tools every trader should know.
In order to apply an effective strategy in trading, forex chart is the key for an in-depth analysis as to how the market behaves from time to time.
Within the community of forex trading, the risk is always at hand. Forex is distinct from gambling. It exceedingly differs as gambling most of the time depends on luck. In forex trading, traders observe for the most appropriate time to make a move. For analysis, forex chart comes in and does its best in helping traders strategize their next move in the market.
There are three view types available in most platforms available online (Profitix provides MetaTrader 5 (MT5) platform available on any device - all chart pattern types is available). Each has its appropriate use to analyze the market behavior.
Here's how the MT5 platform looks like:
You can change the view of the charts by clicking these buttons:
Now to further understand these three pattern types, we'll discuss each and provide you a sample chart for familiarization.
Line charts show traders a good view of the market direction. It creates a line from one closing price to another closing price. Connecting the prices together can provide traders with a general price movement pair over a period of time.
Below is an example line chart:
It is a bit complex than the line chart, yet an effective one if you want to have a closer look at the opening price and closing prices (highs and lows).
Below is an example Bar chart:
Here's how each looks like in a close-up version:
The top vertical bar indicates the highest price traded at the time, while the bottom of the bar indicates the lowest price paid at the time. The vertical bar then indicates the pair's whole trading range.
If you notice, each bar has a hash on their left side and right sides. The left side shows the opening price at the moment. Meanwhile, the right side shows the closing price.
The candlestick chart is the most fun and useful way to analyze a forex chart. It is somehow similar to the bar chart pattern but in much graphical format.
Similar to the bar chart, candlestick bar indicates the high-to-low range with a vertical line. The vertical line at the top is the upper shadow, while the ones at the bottom are the lower shadow.
The body in the middle indicates the range between the opening and closing prices. Whenever the body was shade with a darker color, the currency pair closed lower than it just opened.
On the contrary, whenever the body in the middle is shade with white or at a lighter color, the closing price is higher than the opening price.
Below is a sample bar chart:
On the next chapter, we'll discuss the different types of chart analysis. Expect the next module to be complex compared to the first four modules.
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