Forex Trading with Charts and Trends

There are two ways of analysing the foreign exchange markets. One is to study price movements - known as forex technical analysis. The other is to look at outside influences such as economic factors, political climate etc - known as fundamental analysis.

Let's look in detail at forex technical analysis using charts and trends. The idea is to look back in time at historical data and see how prices have moved and identify trends which can be used to predict what might happen in the future. Trading opportunities exist when you recognise a familiar pattern emerging. There are generally three types of chart used for this - line, bar and candlestick charts:

Line charts are simply a line representing the closing price of a currency pair over a period of time which gives a general visual indication of price movement. However, this only shows the closing price and not the price fluctuations within the trading period.

Bar charts on the other hand will show vertical lines or bars spanning the lowest to the highest price in a given time period. The opening and closing price is represented by a short horizontal bar to the left and right of the vertical line respectively. They are sometimes referred to as OHLC charts because they show, open, high, low and closing price positions.

Candlestick charts are similar to bar charts in that they show the same information but presented in such a way that makes it easier to interpret at a glance. Instead of a thin vertical line showing the high and low price, there is a column whose width represents the opening and closing prices. the columns are traditionally coloured white for rising and black for falling prices but colours such as green for rising and red for falling are now becoming more common. This type of chart is preferred by many traders because it is easier to see the turning points where a price has reversed from an upward trend to a downward trend and visa versa.

Currency traders refer to the trend as your friend because the time to trade is when you see a trend forming and a profit is made by trading in the same direction as the trend. Learning how to spot the trend is vital to success in currency trading and candlestick charts make the complex process of forex technical analysis easier.

Of course there are various software programs on the market which claim to make the whole process of forex technical analysis easier, particularly for the beginner and regular readers of my articles will know that there are some very good products emerging in the market place.