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Technical Analysis – Reading FOREX Charts

Technical Analysis – Reading FOREX Charts

Price charts can be simple line graphs, bar graphs or even candlestick graphs. These are graphs that show prices during specified time frames. These time frames can be anywhere from minutes to years or any time interval in between.
Line charts are the easiest to read, they will show you the broad overview of price movement. They only show the closing price for the specified interval, they make it very easy to pick out patterns and trends but do not provide the fine detail of a bar or candlestick chart.

With a bar chart the length of a line displays the price spread during that time interval. The larger the bar is the greater the price difference between the high and low price during the interval. It is easy to tell at a glance if the price rose or fell because the left tab shows the opening price and the right tab the closing price. Then the bar will give you the price variation. When printed bar charts can be difficult to read but most software charts have a zoom function so you can easily read even closely spaced bars.

Originally developed in Japan for analyzing candlestick contracts candlestick charts are very useful for analyzing FOREX prices. Candlestick charts are very similar to bar charts they both show the high, the low, open and close price for the indicated time. However the color coding makes it much easier to read a candlestick chart, normally a green candlestick indicates a rising price and a red one indicates a falling price.

The actual candlestick shape in reference to the candlesticks around it will tell you a lot about the price movement and will greatly aid your analysis. Depending on the price spread various patterns will be formed by the candlesticks. Many of the shapes have some rather exotic names, but once you learn the patterns they are easy to pick out and analyze.

Price charts are not usually used by themselves to get the full affect you need to supplement them with some technical indicators. Technical indicators are normally grouped into some pretty broad categories. Some of the more common ones used to monitor and track the market movement are: trend indicators, strength indicators, volatility indicators, and cycle indicators.

Here is a list of some of the more commonly used indicators as well as a brief description.

Average Directional Movement Index (ADX) – This index will help indicate if the market is moving in a trend in either direction and how strong the trend is. If a trend has readings in excess of 25 then this is considered a stronger trend.

Moving Average Convergence/Divergence (MACD) – This shows the relationship between the moving averages which allows you to determine the momentum of the market. Any time that the signal line is crossed by the MACD it is considered to be a strong market.

Stochastic Oscillator – This compares the closing price to the price range over a specific time frame to determine the strength or weakness of the market. If a currency has a stochastic of greater than 80 it is considered overbought. However if the stochastic is under 20 then the currency is considered undersold.

Relative Strength Indicator (RSI) – This is a scale from 1 to 100 to compare the high and low prices over time. If the RSI rises above 70 it is considered overbought where as anything below 30 is considered oversold.

Moving Average – This is created by comparing the average price for a time period to the average price of other time periods.

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Forex Learning To Read Charts And Make Your Profits Explode

Forex Learning To Read Charts And Make Your Profits Explode

The first step in technical analysis is to learn to read the charts. Here are a few basic lessons to guide your early attempts.

When first analyzing a currency pair, look for the prevailing trend. Start with the long-term charts (monthly, weekly, and daily), going back for several years. Because these charts contain a greater amount of data, they provide a clearer picture of just what the currency pair is doing than the short-term charts (hour, half-hour, 15-minutes, or 5-minutes). The extra data also makes what the indicators are telling you more reliable.

Identifying the trend is simple: just look at the chart and decide if the graph is going more up than down, or more down than up. Trends can be steep or shallow, years long or weeks short. Practice identifying them, and finding the points where they change direction. The longest-term trend is the strongest, which is another reason for looking at those charts first.

Even if you’re scalping or day trading and don’t intend to hold a position longer than an hour, you’ll do better by trading in the same direction as the prevailing trend. So take the time to identify it on at least the daily charts before you begin. There’s an old trader’s saying: “The trend is your friend.” It’s not a lie.

Once you’ve identified the trend in the long-term charts, compare that with what you see in the short-term charts. You’ll find that there can be any number of intermediate-term and short-term trends within the path set by the prevailing trend. The graph will waver up and down but overall it will follow the path set by the longest-term trend.

Next, find the support and resistance levels, which are the “floor” and “ceiling” points on the graph, respectively. These are key points on the chart where the price repeatedly refuses to break through, or just peeks through then gives up the fight. The price will go just so high or so low, but no further; it reaches that point then changes direction. The more times that happens, the stronger the support and resistance are.

Draw a straight line, either in your mind or on the chart, passing through most of the support points. Then draw another passing through most of the resistance points. This gives you a picture of the path the currency pair’s trend is following, called a price channel, and it’s a simple but powerful tool to help determine how that path will continue.

When support and resistance are strong, the graph of the currency pair seems to bounce along sideways between those two lines like a pinball. When this happens, the currency pair is said to be range-bound. As this happens 80% of the time, many people simply trade within channels, although this technique doesn’t deliver any jackpot profits.

These lines don’t have to be level. Sometimes the currency pair is trending up or down, but still moving within that channel. However it’s slanted, you can still trade within that range.

When a currency pair breaks out of a price channel, sometimes it falls back into the channel, and sometimes it gains momentum and keeps moving. This last is called a momentum market, and it’s the other way to trade the range: set an entry order for the price to break out, either above or below the channel, then sit back and let it ride.

Congratulations—you now understand the most important elements of basic technical analysis!

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Winning Strategies With Forex Charts

Winning Strategies With Forex Charts

As you read forex charts, remember that the two fundamental approaches for online forex trading: fundamental analysis and technical analysis.

Fundamental analysis doesn’t rely on forex charts. It scrutinizes political and economic indicators to determine trades. Charts here are deployed as used as a secondary reference.

Technical analysis on the other hand, attempts to predict price swings by analysis of historical price activity. Those who use technical analysis study the relationship between price and time.

The most actively traded pair of currencies is the Euro and the US dollar, so we will use them in our example. The dollar is on the right hand side of the chart and the Euro is on the left hand side. The currencies are expressed in relationship to each other in pairing. Forex charges will always display how much of the currency on the right hand side is necessary to buy a unit of the currency on the left side. Looking at the typical EU-USD, chart you will notice the last price displayed per given date. This number is always emphasized. The time is tabbed horizontally across the bottom of a chart and the price scale is displayed vertically along the right hand edge of the chart. The time and the price are set in all caps to help the trader remember that technical analysis rests upon the relationship between time and price.

The trader observes the price and time movement on a chart. These include bars, lines, point and figure, and Japanese candle sticks– the most favored method. With the candlestick method there is a large, red section that is the body of the candlestick. Lines protrude from the top and bottom and they are the upper and lower wicks. When you look at all the candles on a chart it is apparent that bodies come by difference sizes. Sometimes no body exists at all.

The same is true with wicks. Candle wicks come by many difference sizes; there may be no wick at all. The length of the body and the length of the wick are determined by the price range for the candle. Longer candles will have had more price movement during the time that they were open. The top of a candle wick is the highest price for that currency while the wick’s bottom is the lowest price. A currency is bullish when the close of the candle is higher than the open. In simple terms this means that there were more buyers than there were sales during the opening time period. Sometimes the candles will not have wicks. The price opened and it dropped off until it closed.

Forex charts don’t offer bullet proof trading hints, but they can help a trader. Past trends do have their place in forex trading as most traders will admit, and using the charts to track historical trends can assist a trader in making a snap decision.

The online investor typically joins a service that provides realtime charts that updates on currency activity. Charts can be checked on a minute to minute basis. For those who primarily do their trading based on historical accuracy this can ease the burden of prediction.

Most forex traders however use a combination of fundamental and technical analysis. They may chart historical trends, but they will also pay close attention to political, cultural and economic indicators within a region. They might use charts and other techniques to check correlation between political climate and currency fluctuations. But even the most sophisticated technical analysis software or tool has its limitations. A trader must be prepared to take risks… and invest money that is not needed for the immediate future.

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How To Read Forex Charts: 5 Things You Must Know

How To Read Forex Charts: 5 Things You Must Know

Learning the basic skills in forex, such as how to read forex charts, is really important.

This is because once you have this vital skill under your belt, it will be a lot easier and quicker when the time comes for you to learn and practice an actual forex trading system.

By the time you finish this article, you’ll learn how to read forex charts, as well as know the pitfalls that can occur when reading them, especially if you haven’t traded forex before.

Firstly, let’s revise the basics of a forex trading as this relates directly to how to reade forex charts.

Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency, not the other way round with the USD first. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.

And your trade size (face value) is the amount of base currency that you’re trading. In this example, if you want to buy 100 000 EURUSD, you’re buying 100 000 EUROs.

Now let’s have a look at the 5 important steps on how to read a forex chart:

1. If you buy the currency pair, that is, you’re long the position, realise that you’re looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency.

On the other hand if you sell the currency pair to short the position, then you’re looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.

Pretty simple so far.

2. Always check the time frame displayed. Many trading systems will use multiple time frames to determine the entry of a trade. For example, a system may use a 4 hour and a 30 minute chart to determine the overall trend of the currency pair by using indicators such as MACD, momentum, or support and resistance lines, and then a 5 minute chart to look for a rise from a temporary dip to determine the actual entry.

So ensure that the chart you’re looking at has the correct time frame for your analysis. The best way to do this is to set up your charts with the correct time frames and indicators on them for the system you’re trading, and to save and reuse this layout.

3. On most forex charts, it is the BID price rather than the ask price that’s displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.

If you use the chart price to determine an entry or exit, realise that when you place an order to sell when the chart price is say 1.330, then this is the price that you’ll sell at assuming no slippage.

If on the other hand, you place an order to buy when the chart price is the same price, then you’ll actually buy at 1.3333. A forex system will often determine whether your orders will be placed simply according to the chart price or whether you need to add a buffer when buying or selling.

Also note that on many platforms, when you’re placing stop orders (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either “stop if bid” or “stop if offered”.

4. Realise that the times shown on the bottom of forex charts are set to the particular time zone that the forex provider’s charts are set to, be it GMT, New York time, or other time zones.

It’s handy to have a world clock available on your computer desktop in order to convert the different time zones. This is important when you’re trading major economic announcements.

You’ll need to convert the time of an announcement to your local time, and the chart time, so you’ll know when the announcement is going to happen, and therefore when you need to trade.

5. Finally, check whether the times on your forex charts corresponds to when the candle opens or when the candle closes. Your charting software may be different to someone else’s in this way.

The reason I mention this, is that if you need to trade major economic announcements, either by entering a trade based on the movements that happen after the announcement, or to exit a trade before the announcement in avoid getting stopped out during it, then you need to be precise (to the minute!) as these trades are performed according to what happens at the 1 minute immediately after the announcement, not the candle afterwards!

So there you have it.

You now have the 5 essential keys to how to properly read forex charts, which will help you to avoid the common mistakes which many forex beginners make when looking at charts, and which will speed up your progress when you’re looking at forex charting packages, and forex trading systems that you want to trade!

Now that you know this, practice looking at forex charts with each of these 5 points in mind.

So get to it!

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Free Forex Signals – Watch our Pro Members Trade the NZD/JPY

www.TradeAdvisorPro.com – Free Forex Signals and forex training video directly to your inbox. Sign up for FREE! In this video I explain a buy position our Pro forex signals and alerts clients took on the NZDJPY pair. We show you exactly how we decided on an entry point, stop and show you…

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Seeing the Hidden Pictures in the Forex Market

www.forextradingseminar.com What do you see when youre looking at forex trading charts? Why do other traders win? Why do others lose? The ability to make decisions that generate profit over and over has to do with what pictures you see when you look at your charts. http

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Reading Divergence in the Forex Market

razorsforex.blogspot.com In this video I give give a few examples of how I analyze divergence in the forex and other markets and how you can incorporate this technique into your traders arsenal. I use RSI (Relative strength Index) for my divergence studies.

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Use Renko Charts to Identify Support/Resistance Zones in Your Futures Trading

To view this webinar in its entirety, please visit bit.ly How can you tell whether price is going through a supportresistance area or just pausing and continuing? Most trends continue. Would you rather enter in the opposite direction of the current trend, or with it? Nearly all traders use supportresistance in some way in their trading. The challenge is to know which level is most likely to hold, and which is more likely to be broken. Join Greg Dennison, founder of ToTheTick, for this webinar event introducing supportresistance zone trading in the futures markets using Renko charts. Renko charts have proven to be very effective in allowing traders to enter once a reversal is confirmed with small risk. Topics featured in this live session include: What are Renko charts Which configuration works best on different futures markets How Renko charts keep you out of markets that move through supportresistance zones How to enter, set stops, and exit in ES, CL, TF, and Euro In addition, Greg will also review a critical key to successful trading, risk management. Identifying good entries with a very favorable rewardrisk ratio, along with a solid money management plan, are necessary components to a successful trading career. ToTheTick delivers daily supportresistance zones in multiple futures markets, including the ES, TF, CL, and the Euro. By constructing Zones of support and resistance using a confluence of several factors (ex. Elliot Wave, Fib RetracementExtensions <b>…<b>

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Forex Strategies

Trade:Forex, Oil and Gold

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