This article is about the methods of using forex charts.
By collecting and pinpointing data on forex charts, it is possible for you to find out the direction of a currency’s value. The trends are normally quite easy to identify. There are however times when you may require longer time periods for charting to identify the trend. This is particularly so during high volatility periods.
Trends are normally visible in a series where you will identify gradual movements in the lows and the highs. An uptrend can be identified as a range of rising lows and highs. A downtrend can be identified as a series of declining lows and highs. To retain an uptrend the requirement is that the successive lows do not go under the previous lowest level. If it goes below that point, it is termed a reversal.
Types of Trends
You will normally find three main types of trends. This is down, up or sideways. The sideways trend is initiated when the up and down movements are minimal. Many traders do not recognise the sideways trend as a trend. They state that it is merely a lack of defined swings in either direction.
To remain consistent with the three trend types, you can find three trend time lengths. A trend can always be classified as either a long-term, intermediate or a short-term trend, irrespective of its direction. Long-term trends in the foreign exchange market are classified as a group of intermediate trends. The short-term trends are made up of major and intermediate trends.
Forex Charts Trend Lines
This method is used in forex charts to indicate the trends in a forex pair. All you need to do is draw a straight line following the trend that has been set. The lines are useful as a method of identification of trend reversals.
The drawing of an upward line is done relative to the lows of the uptrend. A downward trend line is indicated at the highs of the downward trend. This shows you the resistance level that currencies enter when the price moves from a low to a high.
You have the option of several charts if you want to forecast the movements of a currency pair’s value. It is a good idea to get a basic understanding of the different chart types. This will give you the opportunity to find the one most suitable for your trading plan and strategy. Some of the most popular charts used by traders include candlestick charts, head and shoulders, and bar charts.
Candlesticks show the currency value upon opening, the low, the high and the closing price for a trading day. The body of the chart show the range that it moved through between the open and the closing daily prices.
The head and shoulders chart is extremely popular in the foreign exchange market. It shows the point when the currency may increase or decrease.
You should understand the different forex charts and learn how to identify the trends. This will give you the ability to trade with the trend or to use counter-trend methods. Forex charts play a massive role in your trading career.