The (Foreign Exchange) Forex Trading Market Explained.
 

 

Introduction to Technical Analysis - 2

FOREX technical analysis is necessary for successful FOREX trading strategies 

In this second article about FOREX technical analysis we will look at the various kinds of charts and provide basic guidelines for reading charts.

Price Charts

Price Charts show information about FOREX prices at specified intervals of time.  Intervals can be from one minute up to several years and everything in between.  Prices can be plotted with simple line graphs or the price variation for each interval can be shown by a bar or candlestick pattern.

forex trading strategies technical analysis 2

Line charts are suitable for getting a broad overview of price movements.  They show the close price at the chosen intervals.  Line charts are very clean to read and make it easy to spot patterns, but they lack the detail of bar and candlestick charts.

Bar charts offer much more information than line charts.  The length of each bar indicates the price spread for the given period – a long bar indicates a large difference between high and low prices.  The left tab on the bar shows the opening price and the right tab show the closing price.  You can see at a glance whether the price fell or rose for that particular period, and what the price variation was.  Bar charts printed on paper (especially for short periods) can be difficult to read, but software charts usually have a zoom function that makes it easier to read closely spaced bars.

Candlestick charts were invented by the Japanese for analyzing rice contracts.  They are similar to bar charts in that they indicate open, close, high and low prices for a given period.  They are easier to read than bar charts, however, because of their color coding.  Green candlesticks show rising prices and red candlesticks show falling prices. 

Candlestick shapes - when viewed in relationship to neighbouring candlesticks - provide indicators of market movement that can aid in chart analysis.  Various shapes of candlesticks are formed according to price spread and the proximity of opening to closing prices.  Candlestick patterns have been given fanciful names like 'morning star' and 'dark cloud cover' and once the shapes have been learned, they are easy to pick out on a chart for identifying trends in the market.

Price charts are usually supplemented with technical indicators.  There are many Technical Indicators broadly divided into different categories.  Trend indicators, strength indicators, volatility indicators, and cycle indicators are just some of the analytical tools used to anticipate movement and market volume.

Some of the most common technical indicators used in FOREX are:

Average Directional Movement Index (ADX) – is used to determine if a market is entering a trend (either downward or upward) and how strong the trend is.  Readings over 25 indicate a trend with higher values indicating stronger trends.

Moving Average Convergence/Divergence (MACD) – shows the momentum of the market and the relationship between two moving averages.  When the MACD line crosses the signal line it indicates a strong market.

Stochastic Oscillator – indicates the strength or weakness of a market by comparing a closing price to a price range over a period of time.  When the stochastic is above 80 it indicates the currency is overbought while a stochastic below 20 indicates the currency is oversold.

Relative Strength Indicator (RSI) – is a scale of 100 indicating the highest and lowest prices over a given period.  When the price rises above 70 it is considered overbought and when the price falls below 30 it is considered oversold.

Moving Average – is the average price for a given time interval when compared with other prices during similar time periods.  For example, the closing prices over a 3 day period would have a moving average of the total of the 3 closing prices divided by 3.

Bollinger Bands – are bands which contain the majority of a currency's price.  The bands are three lines – the upper and lower lines following the price movement and the middle line showing the average price.  During times of high volatility the distance between the upper and lower bands widen.  If a bar or candlestick touches one of the bands it indicates overbought or oversold conditions.

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Introduction to Online Forex Trading
Current Forex Currency Rates
Forex Trading
How to Get Started In FOREX Trading
FOREX versus Futures Market
FOREX versus Stocks
FOREX Trading Philosophy
FOREX Tools
Fundamental Analysis In Forex Trading
Forex Technical Analysis - Part 1
Forex Technical Analysis - Part 2
FOREX Trading Strategies
Trading Currencies on Margin
Currency Option Marketplace
FOREX Signals
How to Read FOREX Quotes
Calculating FOREX Profits and Losses
Risks of FOREX Trading
FOREX Training
FOREX Trading Software
FOREX Brokers
FOREX Glossary
Forex Updates and Training
Crash Course in Forex Education
How to Recognize Patterns in Forex Trading Markets
Defining Exotic Currencies and Their Impact on Forex Markets
Defining Trading Trend and Ranges in Forex Trading
Mind Games – The Psychology of Forex Market Trading
Crossing Currency - What’s This Mean to Forex Traders
Money Management Basics for Forex Traders
Choosing Your Forex Broker
Expensive Beginner Forex Trader Mistakes
The Elliott Wave Theory for Forex Markets
Failsafe Facts to Guarantee Failure in Forex Trading
Five No Nonsense Strategies in Forex Trading
Global Expansion and It’s Reaches within the Forex Market
Hedging in the Forex Market
The Important Ways to Keep From Losing in the Forex Markets
An Overview of the Euro’s Performance in the Forex Markets
Six Trading Tips for the Forex Newbie
The Lowdown on Day Trading
Interpreting How Interest Rates Drive the Foreign Exchange Markets
The Basics of the Bollinger Band Technical Indicator in Forex Markets
Relative Strength Analysis in Forex Trading
The Basics on Understanding Forex Options
Forex Charts – What Are They and How Do You Read Them
Interpreting the Future of the Oil Marketplace and How It Affects Forex Trading
Top Five Economic Indicators that Drive Forex Trading
Rules for Trading in Forex Markets
How Does the Japanese Yen Stack Up Against the US Dollar in Forex Markets
Pivot Points in Forex
The Ins and Outs of Trying Out a Forex Demo Account
The Top Currencies to Watch in the Forex Trading Game
Defining Moments Regarding Trading Trends and Ranges with Forex
Top Ten Basic Terms in Forex Trading and Their Definitions
Forex Folklore Investment Myths in the Market
Five Economic Driving Forces that Influence Forex Trading
Day Trading All You Wish You Did Not Have to Know
Time line for Daily Forex Trading When are the Optimum Moments
Forex Relative Strength Analysis
How Forex Quotes Can Influence your Trading Tactics
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