If you’re a lover of investments in the field of the currency market, the biggest market in the world, you must know that you cannot do without charts in Forex . Forex charts are the fundamental knowledge tool for intervening and placing investments. The chart is the very essence of trading, the place where you have the opportunity to visually approach the trend of prices on the currency market, we are obviously talking about the exchange rates of currency pairs.
The degree of ability of traders to read the charts basically determines how effectively they’re able to make investments and therefore ultimately the quantity of profits they’re ready to forfeit, it’s absolutely not possible to earn no matter a good ability to read charts in Forex.
You must use the charts with the precise purpose of predicting future price trends as precisely as possible, to choose the best entry points to the market each time, as well as the points at which you must exit the trade to avoid losses. These points, these decisive moments in a trader’s activity, are identifiable because of technical analysis and fundamental analysis. this is an absolutely valid concept both for investing in Forex and with CFD trading or binary options.
The technical indicators are precision instruments that are supported mathematical calculations. The results of the technical analysis derive from the study of data about the price that can be obtained from the trend of the value of a stock in the past, based on this, traders organize themselves to act especially in the medium term. On the other hand, fundamental analysis tools are useful for other purposes. Fundamental analysis was adopted to understand and identify all those factors that can influence the performance of an asset on the market. We are talking about:
- Economic calendar
- Natural disasters
- Correlations between underlyings
- Business economic analysis
- Analysis of the general economic trend of countries based on data such as: GDP, employment, price index etc … etc …
Both technical analysis and fundamental analysis are something incredibly important in any investor’s business, but these are tools that we will consider “external” to the chart as such, which implies that the chart itself is “only “a Cartesian diagram showing the worth trend over time. To represent the worth / time ratio, 3 Forex chart modes are globally widespread . In this article we want to deepen the 3 possible representations by talking about the strengths and weaknesses of each and giving advice on which to use. Don’t miss this explanation of 1 of the fundamental factors in Forex trading !
Forex charts: here are the types available
Credits: Images by Canadian Brokers via https://www.bestforexbrokerscanada.ca/
The line graph, on the other hand, is one of the most common types you can encounter, but also one of the least useful. This chart is important because it gives you, at first glance, an impression of the trend followed by asset prices. The simplicity of this chart allows you to immediately understand what type of phase the market you are considering is in, whether sideways or in an upward or downward trend. This type of chart, however, cannot say much more than a general impression on the market because it lacks fundamental data such as maximums and minimums reached by the price, and the closing and opening value of the price.
The linear graph has obvious limitations, in particular, at least two very important pieces of information are lost:
- Volatility : given that the difference between the maximum and minimum marked by a security during a session provides us with important indications on the volatility of a security and the linear graph does not show them, this information is lost.
- Directionality : of the stock itself, since only by graphically representing both the closing and opening prices will we be able to have an immediate perception of the performance of the stock during the session.
In conclusion, the linear graph is used almost exclusively by those who intend to give particular importance to the closing price only, and is therefore particularly suitable for representing the graphical trend of products that are detectable only through a single value that is precisely the closing.
Another type of chart that you can find yourself facing by investing with online forex trading broker platforms is the bar chart. This type of chart is a harbinger of useful information for the trader , as it also indicates the opening and closing price of the trading session and the minimum and maximum price reached by the assets during the trading sessions being analyzed.
At first glance the bar chart might seem complicated, but don’t be fooled as its reading is easier than you can imagine. On a graphic level you can see a vertical temple that has two horizontal side wings, one facing right and one facing left, one placed at the top and the other at the bottom. The ends of the vertical line indicate the highs and lows reached by the price while the two horizontal bars show you very clearly the opening and closing of the price. Although in the past it was a widely used chart type, today it is no longer the case because in addition to the basic information about the price, the bar chart is not able to offer much more.
The Japanese Candlestick Chart (also known as the “candlesticks” chart) is one of the most used and most reliable charts you can find on online forex trading platforms. It is an excellent graphic form to make your technical analysis and consistently increase your chances of making profitable and profitable investments.
The name of this graph derives from the fact that it was used by Japanese analysts as early as the eighteenth century to study the trend of the price of rice within its market, which as you know was one of the most important commodities in a country like Japan. . Rice was the fundamental raw material of that country around which the main negotiations were concentrated. Although very simple to observe, this graph is able to provide a huge amount of information compared to other types of graphical representation. In the opinion of the vast majority of traders in the world, the Japanese candlestick chart is the best and most complete one, from the point of view of information for traders: in trading, information is everything!
From this graph you can draw, at first glance, information very similar to that of a bar graph, but in a clearer and more detailed way. Each candle shows the opening price and closing price of a trading session. This part of the candles is called real body and has a rectangular shape in most cases, moreover the body of the candles is red in the case in which the closing price is lower than the opening one, green instead when it occurs. the opposite. In addition to the opening and closing prices of trading , candles can have a shadow , i.e. a shadow that represents the maximum and minimum levels reached by the price in that particular time frame.
The added benefit of candlestick forex charts
As we said, the Japanese candlesticks represent an inexhaustible mine of information for traders, providing different signals of entry and exit from the market, on the continuation of a trend or on its end. But how can Japanese candlesticks provide all these types of information in addition to the basic ones? It all depends on the shape the candles take.
In fact, analysts have noticed that, naturally, some figures that are formed through candlesticks are a direct expression of the psychological condition of the market and offer highly reliable information on the continuation in the short – medium term of the price on the market. Knowing how to read the various figures on the candlesticks chart is a huge advantage that allows you to always stay one step ahead of the market. But be careful because obviously Japanese candlesticks are not free from false signals, so caution must always be maintained.
As you have understood, the chart is not something to be underestimated when you intend to invest in the Forex market. We have given you our advice: to use the Japanese candlestick chart. If you have the patience to memorize the main figures of this type, which in all will not be more than a dozen, over time you can dramatically improve your ability to make winning investments, thus increasing your income. Trade like a pro by making the most of the information on Forex charts, every minute you spend analyzing is amply rewarded in economic terms!