The Part Played By Forex Technical Analysis
Trading in the forex market today means having a sound grasp of technical analysis and an ability to track currency pairs by learning the skill of reading live or real time forex charts. For the novice this also means locating a source of good online forex charts. Or, even better, if you can discover some free chart pattern recognition software for forex and find out how to use it you will be well on the road to trading with a reasonable degree of confidence.
Price charts provide information about currency prices at particular time intervals ranging from as little as one minute clear up to many years and prices can be plotted either as line charts or bar or candlestick charts giving price variations at set time intervals.
Line charts are simple to read and give a broad overview of price movements which often illustrates clearly identifiable patterns in price movements. By contrast, bar charts are harder to read although they do provide much more information.
Put simply, the length of a bar on a bar chart depicts the price spread for a specific time period and the shorter the bar the smaller the variation between high and low prices. Opening and closing currency prices are shown on every bar so that you are able to see easily whether the price has risen or fallen and exactly what the variation in price has been. Though bar charts can be hard to read, the majority of chart pattern recognition software programs ease the job of reading bar charts quite considerably.
Formulated in Japan to analyze rice contracts, candlestick charts are similar to bar charts although they are much easier to read because they are colored. For example, green candlesticks show prices which are rising while red candlesticks depict prices that are falling.
The advantage of candlestick charts is that candlestick shapes when they are seen in relation to one another create patterns many of which have been given names like ‘Dark Cloud Cover’ and ‘Morning Star’ and once you learn to recognize these patterns it is simple to pick out market trends.
While a real time forex chart can give you a lot of information about a specific pair of currencies this information is usually supplemented using a number of forex technical analysis indicators including strength, trend, cycle and volatility indicators that are used to forecast both the movement and volume of the market.
The most commonly used forex technical indicators include Average Directional Movement (ADX), Moving Average Convergence/Divergence (MACD), Relative Strength Indicators (RSI), Stochastic Oscillators, Bollinger Bands and Moving Averages.
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