Basics Of Forex Charts
The fast-paced environment and the leverage levels offered in foreign exchange trading promote traders not to hold their positions for long periods of time. Forex day traders often place huge trades several times per day and they often do not hold them for more than a few minutes. When you are dealing with these small windows of time, technical analysis and forex charts are efficient tools to use as they are indicative of a huge amount of information in a limited time frame.
Candlestick Forex Charts
Most traders are aware of conventional line charts that have been around for centuries. Candlestick forex charts have also been around for centuries and offers the viewer more information than the line chart does. It is a thin vertical line which shows the trading range of a period. A wide bar on this vertical line shows the variance between the opening and closing price.
A daily chart will indicate the value of a currency when it opened, the high, the low and the value at closing on a particular day. The body of the candlestick is the wide section. The body indicates the range between the opening and closing of the trading for the day. When this section is filled in or it is black, it indicates that the closing price was lower than the opening price. If that body section is empty, it indicates that the closing was higher than the opening.
Below the ‘real body’ section, you will find the ‘shadows’. These are often called the wicks and they indicate the highs and a low of that day’s trading. If the top wick is short on a down day, it means that the opening on that day was closer to the high of that particular day. A short top wick on an up day indicates that the closing was close to the high. These relationships determine what the candlestick will look like.
When you view this chart, you can immediately see the opening and the closing rates of a currency. You can see the high and the low value, and if it closed higher than its opening price. If you view a series of these candlesticks, you will be able to map a trend.
When you view data collected and plotted on charts, you will start seeing the direction in which a currency is headed. The trend is often clearly identified by a straight upward movement, and in some cases it may be quite difficult to identify a trend if there is severe movement in the charts. It is for this reason that trends generally operate in a gradual movement of lows and highs. An uptrend can be described as a series of rising highs and lows, and a downtrend as a series of descending lows and highs. For a chart to remain an uptrend, it is necessary for each low in succession to not ball below the lowest previous point. If it does fall below, it will be deemed to be a reversal of the trend.
There are three normal trend types – horizontal, down and up. A horizontal trend occurs when there is limited movement either down or up in troughs and peaks. This is often not considered to be a trend at all as there is a lack of well defined movement in a given direction.