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What Your Forex Charts Are Not Telling You

Reading Forex Charts

A lot of forex traders use forex charts to analyse the market movements.  While this is a very good way of determining what the market is going to do there are a number of things that your forex charts are not telling you.  It is important that you know about what these things are and how this can affect your trading.  Some traders find that these things are small enough to ignore while others feel that they need to find ways to overcome this.

Forex Charts and News

True technical trades feel that they do not have to look at fore news because the chart movements will include the news.  While the reactions to the news are included in the charts there are other points that are not.  It is recommended that when you trade you not have a position open when news is released.  If you are only looking at the forex charts then you are not going to know when the news is being released.  This is something that your charts cannot tell you.

Some Lost Information

There is actually some information that is lost between the market and the forex charts.  Charts are more a summary of the movements on the market and not an actual representation of the movements.  This means that when the data is summarised you are losing certain pieces of information.

If you are using candlestick charts, which are the most commonly used, then you are going to be getting the opening and closing prices of the market.  This is a summary of the overall movement in the timeframe you are using.  This means that if you are looking at the 5 minute charts you are going to see a summary of the market movements for the last 5 minutes.  You are not going to be able to tell what exactly happened until you look at a shorter term chart.  However, the shortest term chart is the minute chart which also summarises the information.

The low information on the charts will include false breakouts and any rapid movements on the market.  All of this information is lost because it does not impact the overall open and closing prices of the market.

How this Affects Your Trading

Some traders feel that this lost information does not impact your trading too much.  However, there are other traders who feel that you should know about the impact.  There are a number of negative impacts that you have to consider.

When you back test a strategy you could find that it works on the market.  However, when you look at using the strategy on the live market it does not work.  This could be due to the lost information which gave you a distorted idea of what could happen.

If you are using a long-term chart you could be opening a position at a different price than what is on the charts.  As the chart is a summary of the movement the prices you see may not be the ones that you are actually going to get.  You have to consider this and take it into account when you trade.

 

 

 

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