Technical Analysis Of Charts In Forex Trading

By Author: Ella
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Those who have learned about the basics of currency pairs, their types and how to invest would be having a strong urge to invest in currency pairs but without a technical analysis if someone enters the currency exchange market, then it would be nothing but a fool’s play.
Technical analysis is the only weapon with which you can win the forex game and make a decent profit.

Technical analysis is a broad term used for studying charts, indicators and other tools used for signalling the market trend.
Here in this chapter, we will give you a glimpse of all the technical tools that are used in the forex industry.

Commonly used technical indicators include the MACD, RSI, and moving averages. Other indicators that are less in trend but equally useful are- Zigzag, Envelopes and TTM Trend. Here is a brief explanation of each one of them.

MACD Indicator – Abbreviated as Moving Averages Converging and Diverging type indicator. It is used by 22 per cent of traders all over the world.

This Indicator is plotted based on momentum ...
... undergone by the market in the last few days. i.e. it is an EMA (exponential moving average) line plotted between 12 days and 26 days EMAs. And the resultant MACD is drawn on a zero line.

In laymen term we can understand it like when the 12 day`s EMA crosses over the 26 day`s EMA then the MACD line is plotted above the zero lines and the market status for that days is considered bullish.

And conversely when the 12 day`s EMA is below the 26 day`s EMA, then the MACD line is plots underneath the zero line. I.e. bearish market.

RSI Indicator - Developed by J.W. Wilder, it is a relative strength index momentum indicator whose histogram is plotted between two standard values of 70 and 30.

The moment, histogram crosses over the value of 70, it is called overbought, i.e. the market is trending in a bullish phase. And when the histogram crosses below the mark 30, then it is termed as oversold. i.e. the bearish phase of the market is there.
This is used by 44 per cent of the stock traders worldwide.

Stochastic Indicator – Unlike the RSI indicator, it works on the principle of price shift for a fixed time frame, be it days, weeks or months. Generally, the time frame is of 14 days for easy calculations.

In this calculator, a security`s current price is compared to the price range of the same entity over some time.

When the price of the trading instrument exceeds the mark of 80 then the situation is known as overbought and when it falls below 20 then it is called oversold, and both the condition are differently termed as bullish and bearish respectively.


And if the price lies in between these values, then the market is in an exhaustion state. i.e. there is no more trader left to buy.

Zig-zag Indicator – This Indicator is made with the purpose to concentrate on the trend shift rather than price shift. But it is less in trend as most of the things like this can be inferred from candlesticks.

Envelop type indicator – Envelop Indicator is a somewhat moving average indicator type, and it envelops the value of the simple market average of the current trading asset in real-time by the upper and lower moving average Indicator.

Specific charts are also used to get an idea of what is going on in the market in real-time. Those are listed below and discussed one by one.
Line chart – This is the most straightforward chart from the perspective of a beginner as it filters out all the noise in between typical ups and downs of the currency pairs prices in the industry.

This chart is made by connecting several open, high, low or closing points by a straight line.
One can easily figure out support and resistant levels in this chart.

Bar chart – In time respect if someone wants to know the open, close, high or low-price status of a traded instrument, then this chart is very helpful to him.

In a vertical bar, there are two small horizontal lines showing the opening and closing price of currency bottom and top, respectively. And the endpoints of the vertical line, both top and bottom one represents the highest and lowest price of a traded instrument for a particular time duration.

Candlestick chart - This is one of the most predominantly used charts as more information can be drawn from two candles combinations only.

The big block in the candle-like structure is called the real body and the narrow upper, and bottom lines are called upper and lower shadows respectively, and they represent the magnitude of a bull market or a bear market.

Now, When the currency trade opens up at a low price and closes at higher prices then it is called a bull market whereas when the currency trade opens up at a higher price and closed at a comparatively lower price then it is called a bear market.
Point and figure chart – Also known as PNF charts. This type of chart is mainly focused on tiny price changes without taking into consideration of the time span.

This chart is best suited to the traders who are more concentrated on support, resistance level and breakouts.

In this chart, the filtered price moments are represented with simple notation, and each of them occupies a box having a fixed box size. The notations are “X” and “O”, where they represent rising price and falling price respectively.

Renko chart – This chart is also known as the Brick chart. This chart is designed in japan and is fruitful for those traders who want only price fluctuation irrespective of time, high, low etc.

As this chart is least noisy; hence it is popular among new traders, albeit its inception is more than 100 years old.

Conclusion:

If you want to learn more about different trading charts you can open a trading account with one of the most prominent and leading online broker ETFinance.