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Forex Trading Charts

Your capital may be at risk. This material is not investment advice.
Written by trading expert:Professional Day Trader
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Short resume:
  • Author of the book Options Trading for beginners
  • Worked in finance in 12 years
  • Got a MBA in Finance, BA, International Business Administration And Marketing
  • Built a solid record of achievements through constantly developing financial markets
  • Traded on the most frequently utilized stock exchanges: TSE, LSE,NASDAQ, NYSE, Euronex Actively managed a 6-9 million dollar portfolio
  • Developed new and innovative trading systems and implemented them during trading hours
Matthew O'Connor is the author on the bestseller Option Trading for Beginners
Option Trading for Beginners - Written by Matthew O'Connor

One of the important skills that you will need in order to make successful investments and trades is reading the charts. Charts are commonly used for currency and asset trading to represent the price history of a particular instrument over a period of time. While the price of the underlying instrument such as currency exchange rate depends on a vast number of economic and political factors, it is completely possible to trade based on the information gained from the charts and price history alone. This way, you can make trades without needing exhaustive economic study.

Analysis of charts is known as technical analysis. The aim of technical analysis is to determine the general trend of the market and make investment or trade decisions based on them. A basic requirement for this is to understand what information is presented in a typical forex chart or any other trading price history chart. Let us take a brief look at some of the common typed of charts used for trading.

Line chart

The line chart is one of the simplest charts and is often useful for novices. In this chart, time is plotted on the Y-axis and the price is plotted on the X-axis. A line chart can be generated by simply plotting the closing price of the trade for a specific time. The closing price is the exchange rate at which the last transaction of that interval occurred. For example, consider an hour by hour day trading chart. For 1300 on the Y-axis, the price at which the last trade was conducted, say at 1259, is plotted. Then all these points can be connected to get a line chart. This is a simple chart and does not tell much details.

Candlestick chart

This is a much more useful chart and can convey a lot more information to those who can read it. This chart consists of candlestick shaped objects, which are bars with wick like line extrusions on top and bottom. Continuous time on Y-axis is divided into finite intervals. Each candlestick represents all the trade occurring within a particular interval. These candlesticks are usually spaced out for ease of reading.

These candlesticks are either green or red in colour. If the candlestick is green, the bottom of the bar represents the opening price and the top of the bar represents the closing price of the interval. The green colour represents that there was a net increase in price in that interval. The inverse is true for the red bar. The top is the opening price, the bottom is the closing price and the red represents a net fall in price. For monochrome charts, green may be replaced by a white shading and red may be replaced by dark or black shading.

The line extrusions, also called wick or tail, represent volatility or price fluctuation. The wick on the top represents the highest price reached during the interval. The bottom wick or tail represents the lowest value reached during the interval. If there is no wick or tail, then that end of the bar was also the extreme. For example, if there is no top wick, then the opening price was the highest price during that interval.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future. In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.
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