Tutorial Forex

A picture is worth more than a thousand words. The forex chart is perhaps the best proof of this clich. Have you heard of Candlestick Charting? It was developed by the Japanese in the 17th century to profit from rice trading.

Appearance of certain chart patterns can give you priceless clue about the direction in which the market is about to turn. Traders have become very sophisticated in understanding charts and the information contained in them over time. Dont confuse the Head and Shoulder pattern with the name of a shampoo. Head and shoulder is an important trend reversal chart pattern.

Study of charts is known as Technical analysis. Whether it is sideways, upward or downward, by studying the patterns that appear on the forex charts, you can predict the likely direction of the currency pair. Technical analysis depends on the study of different types of charts to understand and predict the likely direction of the currency market. Without technical analysis, you wont be able succeed in forex trading.

You must have seen a bar chart. However, it is possible that you may not have looked at a point and figure chart if you are new to trading. There are four main types of forex charts that are used in the world of forex trading. The four main types of forex charts are: 1) Line Chart, 2) Bar Chart, 3) Candlestick Chart and 4) Point and Figure Charts (P&F Charts). Bar charts, candlestick charts and P&F charts are frequently used in the technical analysis. A brief description of each one is given below.

Line Charts: This chart resembles a line hence the name line chart. This chart simply connects the closes from one period to another. Critical data is missing from a line chart as a line chart doesnt show you where the currency pair opened for the period. It only shows where it closed. Nor does it points the high and lows for a period.

Bar Charts: A bar chart shows the opening, closing and the low and high for each period. The bar chart addresses many of the shortcomings of the line chart. The bar chart can provide the hourly, daily, weekly and even monthly information. It is also often called the OHLC (open-high-low-close) bar chart.

A horizontal line protruding from the left of the bar represents the opening price of the currency pair. A horizontal line protruding from the right of the bar represents the currency pairs closing price. The periods high and low are the top and bottom of the bar.

Candlestick Charts: Traditional bar charts and the candlestick charts do almost the same thing. But candlestick charts do it more effectively. Candlestick chart clearly depicts the currency pairs open, high, low and close. A candlestick chart is made up of two components.

The real body of the candle is the range between the opening and the closing price of the currency pair. It is also called the candle body. The candlestick body is white if the currency pair closing price is above the opening price and it is taken as a bullish sign. Similarly the candlestick body is painted black if the closing price is below the opening price and it is taken as a bearish sign. The price movement above and below the body is called the shadows. It is also known as the candle shadows.

Point and Figure Charts (P&F): The main advantage of the P&F charts is that they filter out noise. The only downside is that they dont represent the time well. Point and figure charts plot the currency pair price using a column of Xs to represent rising price movements and Os to represent falling price movements.

The Xs and Os are plotted only when the currency price moves by a predefined amount. The new plot is only made when the price exceeds the predetermined threshold by a fixed amount. A plot may not be made if the currency price does not move significantly.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!