Charts and diagrams

2:01 PM |

Forex  chart s are  based  on  market  act ion  involving  price.  Chart s are  maj or t ools in Forex t rading. There are many kinds of chart s, each of which helps t o visually analyze market condit ions, assess and creat e forecast s, and ident if y behavior pat t erns.
Most chart s present t he behavior of currency exchange rat es over t ime. Rat es (prices) are measured on t he vert ical axis and t ime is shown of t he horizont al axis.
Chart s are used by bot h t echnical and fundament al analyst s. The t echnical analyst analyzes t he “ micro” movement s, t rying t o  mat ch  t he  act ual occurrence wit h known pat t erns. The fundament al analyst t ries  t o  f ind correlat ion bet ween t he t rend seen  on  t he  chart  and  “ macro”  event s occurring parallel t o t hat (polit ical and ot hers).
What is an appropriat e t ime scale t o use on a chart ?
It depends on t he t rader’ s st rat egy. The short -range invest or  would probably select a day chart (unit s of hours, minut es), where  t he  medium  and  long- range invest or would use t he weekly or mont hly chart s. High resolut ion chart s (e. g. – minut es and seconds) may show “ noise” , meaning t hat wit h f ine det ails in view, it is somet imes harder t o see t he overall t rend.
The maj or t ypes of chart s:

Poi nt and f i gur e char t s - chart s based on price  wit hout  t ime.  Unlike most  ot her invest ment  chart s,  point  and f igure chart s do not  present  a l inear represent at ion of t ime. Inst ead, t hey show t rends in price.
Increases are represent ed by a rising st ack of Xs, and decreases are represent ed  by  a declining st ack  of  Os.  This t ype  of  chart  is used  t o f il t er out non-significant price movement s, and enables t he t rader t o easily det ermine crit ical support and resist ance levels.  Traders  will place  orders  when  t he  price  moves  beyond  ident if ied  support   / resist ance levels.

Candl est i ck char t

This kind of chart is based on an ancient Japanese met hod. The chart represent s prices at t heir opening, high, low and closing  rat es,  in  a form of candles, f or each t ime unit select ed.
The empt y (t ransparent ) candles show increase, while t he  dark  (full) ones show decrease.
The lengt h of t he body shows t he range bet ween opening and closing, while t he whole candle (including t op and bot t om wicks)  show  t he whole range of t rading prices for t he select ed t ime unit .