The Significance Of Using Forex Technical Analysis
Foreign exchange trading nowadays requires a good grasp of technical analysis and an ability to track currencies by mastering the skill of reading live or real time forex charts. For the newcomer this also means locating a source of good real time forex charts. Better still, if you can discover some free chart pattern recognition software for forex and discover how it works you will be well on your way to trading with a reasonable degree of confidence.
Price charts provide information about currency prices at specified time intervals that can range from as short as one minute up to several years and prices are plotted either as simple line charts or as bar or candlestick charts giving price variations at set time intervals.
A line chart is easy to read and gives a broad overview of price movements which often demonstrates clearly identifiable patterns in price movements. Bar charts, by contrast, are harder to read but do give you far more information.
Put simply, the length of each bar on a bar chart portrays the price spread for a given period and the shorter the bar the smaller the variation between high and low prices. Opening and closing prices are indicated on each bar so that you are able to see at a glance whether the price has fallen or risen and precisely what the variation in price has been. Despite the fact that bar charts can be difficult to read, most chart pattern recognition software packages simplify the process of reading bar charts markedly.
Devised by the Japanese to analyze rice contracts, candlestick charts are like bar charts but are a lot easier to read because they are color-coded. For instance, green candlesticks are used to show prices which are rising while red candlesticks show falling prices.
The beauty of candlestick charts is that candlestick shapes when seen in relation to one another create clearly recognizable patterns a number of which have been given names like ‘Dark Cloud Cover’ and ‘Morning Star’ and once you learn to recognize these patterns it is an easy matter to spot trends in the market.
While a price chart can provide you with a great deal of information about a particular pair of currencies this is generally supplemented using numerous forex technical analysis indicators including trend, strength, volatility and cycle indicators which are used to predict both the movement and volume of the market.
Frequently used forex technical indicators include Moving Average Convergence/Divergence (MACD), Averge Directional Movement (ADM), Stochastic Oscillators, Relative Strength Indicators (RSI), Moving Averages and Bollinger Bands.
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