The core concept of forex trading is to predict the asset price movement and position your trade accordingly. However, it'll be harder for you to monitor, analyze, and chart the market movement and profit from it.
Price charts allow you to have visual and organized data for informed decision-making.
In this lesson, you'll learn one effective way to profit from the market and the tools you can use. Specifically, you'll walk through the concept of technical analysis and the three main price charts to monitor and trade the market movement.
In the forex market, no crystal ball tells you which direction the market will move. What forex traders have in their arsenal are price chart, analysis skills, and their ability to make sense of the prevailing trend.
One effective way to trade currency pairs is by using historical and current market data. By this, I meant to perform technical analysis when trading forex.
Briefly, technical analysis gives you a scoop on what happened, what is happening, and what will potentially happen according to the market indicator. All technical traders rely on historical data, market volume, and technical indicators to make sense of the prevailing and future market trends.
In its most basic form, the price chart provides a visual representation of how the market moved and is moving now, often based on its supply and demand. It's usually adjustable to multiple time frames to make charting and analysis more personalized and advanced.
Price charts have two crucial areas for your analysis: the Y-axis and the X-axis, which represent the assets' price points and the time or period scale, respectively.
To cater to different traders, short-, medium-, or long-term traders, almost all trading platforms now support multi-timeframe analysis. This means you get to develop a wider understanding and perspective of the market trend because you have a wider reference on how it previously moved.
If you want to look at the different time ranges, you can adjust the chart price range from 1 minute to a year.
When you watch the price movement on your workstation, you look closely at the price charts. Remember, knowing how these charts work will save you money from potential losses due to failed speculation.
Here are the common price charts and how to use them to maximize your position's potential.
The Japanese candlestick price chart is probably the most used among all the chart prices. It presents the data nicely, making the analysis beginner-friendly and easy to understand.
Like any other price chart, candlestick shows the opening and closing points of the market for the specific period, as well as the highest and lowest points the asset has reached for the selected period.
The candlestick has different parts, representing vital currency pair market data.
This shows the range between the opening and closing levels of the asset in the specific period.
By default, the Japanese candlestick's real body is filled with color, which is either red and green or black and white. When it is black or red, it signals that the asset's opening price is higher than the closing price.
A green or white candle represents a market period where the closing price is higher than its opening.
Remember:
Today, almost all charting platforms allow traders and analysts to customize their trading charts. This means the colors of the candle vary from user to user.
Also known as wick, the shadow extends above or below the real body to represent the highest and lowest level the asset has reached over the selected period.
If the shadow is above the real body, it indicates the highest price reached; if it is below, it represents the lowest price reached.
The line chart is the simplest form of the price chart. It plots the asset's closing price and connects it with a line. This creates an easy-to-look graph that depicts the prevalent market trend.
However, its simplicity comes with its downside. The line chart may not provide detailed price data for technical analysis because you don't have any necessary data aside from the closing trend of the asset. The critical data it fails to provide are:
Like the candlestick chart, the bar chart also gives a graphical presentation of the asset's opening, closing, lowest, and highest prices for the given period.
The bar's vertical line shows the market's high and low prices, while the horizontal lines represent the market's opening and closing prices.