Forex Price Charts: Trading With Technical Analysis

Author: Albert S.

Some Forex traders say the best indicator is price. Therefore many traders use chart patterns with the help of technical indicators trying to predict the price movement. This approach is quite different from the fundamental analysis when price is predicted based on economic news and social events.

Technical analysis is based on analyzing chart patterns. Ideally you need to look at past chart data and recognize the patterns that precede or follow the trends. Once you learn to recognize the patterns you will be ably to predict the future price movement to some extent.

Traders usually use three types of price charts:

- First one is line chart

The name of line chart tells it all. It is a line connecting the closing prices. Ups and downs of that line show the movement of the currency pair. Unfortunately this type of price does not show you any information on price behavior within the time period. You can see only the close price.

- Bar chart is the second one

Unlike the line chart, bar chart is represented by vertical lines that are called bars. The highest price during that time period is represented by the top of the bar. The lowest price is represented by the bottom of the bar. There are two horizontal bars. The one at the left side is opening price and short bar at the right is closing price during that period of time.

That's the reason they call bar charts OHLC charts, since it represents open, high, low close prices.

- Candlestick chart is the third one

Candlestick chart gives the same information as bar chart. The only difference is that candlestick chart gives better visual representation of price tendency inside the time period.

Candlestick is also shows the price movement in vertical direction. The top of it represents the high of the price and bottom is low of the price for given time period. The difference in the body of a candle. It is colored differently depending on the price movement. If the price went up during the period it will have one color and if the price went down during that period the candlestick will have another color. Different charting packages use different color but common colors are green for the rising candlestick and red for falling one.

Many traders prefer candlestick patterns. The reason for that is the graphical nature of the chart. All trends can be easily seen at a glance thanks to the difference in color for up trend and down trend.

When there is an emerging trend the earlier you make a decision the more successful the trade will be. As the expression says: "Trend is your friend" recognizing the trend early is a major skill for a successful trader. In my opinion candlestick chart can be used with great success to develop the skill of recognizing the emerging trend.

Albert Schmidt has been in the field of Forex Trading for quite some time by now. Visit his blog about Forex trading where you can find answers to the rest of your questions about how you can learn to trade Forex.

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