Forex Chart Guide
Technical Analysis - Understanding Chart Indicators
Charts form the foundation for currency trading strategies. Candlestick charts give the opening, closing, highest and lowest price with the help of a vertical bar positioned on a shaft. They depict the range of values for a currency pair for a given period of time. A trader needs to be able to interpret charts to decide on the appropriate strategy.
If the candlestick chart is coloured it means that the closing price is below the opening marketing price. If the opening price is less than the closing price, the candlestick is hollow - not coloured. The coloured/hollow portion of the forex candlestick is called the body of the chart while the lines above and below the body are known as shadows.
A candlestick with a long body indicates strong activity while one with a short body indicates less activity. The upper and lower shadows signify that forex trading pushed prices well beyond the opening and closing price. A long upper shadow means that buying activity pushed the prices up, but selling outweighed buying and resulted in the price settling at a level near it's opening price.
If upper and lower shadows are long , it indicates a market wherein buyers and sellers are uncertain. If the opening and the closing price are the same , the body of the candlestick becomes extremely short and the candlestick starts to look like a cross, an inverted cross or a plus. This pattern is called a doji.
A doji denotes a change or a reversal especially if it occurs after a series of candlesticks with coloured or hollow bodies since it indicates the resumption of buying or selling activity respectively. Hammer (hanging man) indicate that the prices are beginning to bottom out or have peaked.
When prices start increasing the lowest point, that is reached by the market before it moves up, is known as support level. When prices start falling the th highest price, that is attained before the market pulls back, is known as resistance level.
A support is like the bottom of the valley while resistance is like the peak of a mountain. A line that joins the bottom of the valleys is known as the uptrend line while the one that joins the peaks is known as the down trend line. A pair of downtrend and uptrend lines create a channel that is basically a technical range between support and resistance levels.
Moving averages are used to smooth out fluctuations in price or volume. They may be simple or exponential and are used to measure momentum and identify support and resistance. A downward momentum is identified when the short term moving average crosses below a long term average. Vice versa indicates an upward trend.
About the Author
Miles Carmichael is a professional Forex Trader of many years standing. He is happy to share his FX knowledge and know how with fellow traders. Benefit from his expertise at http://www.betsandthecity.com where his pro forex strategies are available free.
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