Monday, October 1, 2007

Proper Analysis Of The Forex Chart

In all media references, you may have heard about Foreign Exchange. Still, a lot of people have little idea when it comes to forex trading, especially reading the forex chart. People seldom realize its importance because they probably have not participated in it.

But it is actually quite easy to understand the forex chart, as long as you know what to look for. There are essentially two basic approaches for buying and selling currencies and this is where the understanding of a forex chart comes in.

First off is the Fundamental Analysis approach. This approach doesn? depend on forex charts at all. Instead, it uses economic and political factors to establish trades. Charts are essentially used just for reference regarding exiting and entering trades. The other approach is the Technical Analysis approach. This approach, meanwhile, tries to forecast the direction of prices by studying historical price movement on a particular chart. Technical analysts observe the relation between price and time.

To know how currencies are related to one another is very important. A forex chart always shows to your RIGHT, the value of the currency so one can buy a unit of the currency found to the LEFT. Recorded horizontally, time will be found somewhere at the chart? bottom alongside the price scale to the right. Price scale always stands for the currency to the east in the forward slash.

The most popular way of observing price or time movement on a forex chart is by means of the Japanese candle sticks. In order to watch price movement, one must pay attention to Japanese candle sticks. In case you don? know, a lot of traders depend on these sticks in making decisions in trading. A Japanese candle stick provides a way to examine price movement for a currency pair over a given timeframe. How much "time" each candle represents depends on the timeframe of the chart. If the chart below were a one-hour chart, each red and blue candle on it would represent the price activity for the currency pair over the course of one hour. If the chart were a daily chart, each candle would represent price activity for one day. It does not really matter what the timeframe is. You just have to remember that a candle represents price activity for the timeframe of whatever chart you are viewing.

The following are the basic parts and whatnot of a typical forex chart. The fat red section is the body of that candlestick. The lines protruding from the top and bottom are the upper and lower wicks. The bodies of the candles can be of varying sizes in a forex chart. There may also be times when there are no bodies in the chart at all. This is not something out of the ordinary. The same goes for the wicks. The wicks can be of varying sizes, or there just might not be any wicks at all. The length of the body and the wick is determined by the price range for that candle. Longer candles had more price movement during the time they were open. The very top of a candle? wick is the highest price for the currency pair, while the wick? bottom represents. When a candle is considered "bullish", this means there were more buyers than sellers during the time the candle was open.

Reading a forex chart actually becomes simple once you completely understand its symbols and figures.

Francisco Segura owns and operates

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