Forex (foreign exchange) is a specialized form of day trading involving world currencies. World currencies fluctuate in price, against one another and over time, creating a potential for investment. Categorized as over the counter (OTC), forex is traded over the phone or computer between banks, investment funds, forex brokers and traders. Major trading centers exist in Sydney, London, Tokyo and New York, making forex both a global and a 24-hour market. A speculative market, forex requires doing some research before making a commitment. Forex charting is a technical method of gathering some of that research.
Forex charting is a method of providing financial data, in this case the performance of world currency, in the form of different types of charts called currency charts. Currency charts represent a single period in time: a minute, a month, a year, depending on how the charts are packaged. Packages vary and the charts can be customized per the investor’s particular investing needs.
Different types of forex charting provide different methods of measuring price action. The principal chart types are:
• Line Chart: The line chart represents the historical exchange rate of a currency over a specified period. The chart is created by drawing a line connecting all these data points, resulting in what looks like a mountain range. A line chart can give the investor a good idea of an asset’s performance over time.
• Bar Chart: The bar chart is a representation of the performance of a currency pair, depicted by vertical bars at set time intervals (e.g. every 60 minutes). Each bar has four “hooks”, representing the opening and closing, highest and lowest prices during one day of trading. This type of forex charting is used to spot trends and patterns.
• Candlestick Chart: Candlestick forex charting is used to forecast the market. It represents OCHL prices as “candlesticks” with a wick at each end. When the opening rate is higher than the closing rate the candlestick appears “solid”. When the closing rate exceeds the opening rate, the candlestick appears “hollow”. As a result of the colored bodies, the candlestick gives more visual details than any other chart.
• Point & figure charts: Point and figure patterns are essentially the same patterns found in bar charts but Xs and Os are used to mark changes in price direction. A column of stacked Xs illustrates a rising price, where Os represent falling prices. This type of forex charting is useful in filtering out non-significant price movements and allows the trader to ascertain critical support and resistance levels.
By analyzing these different types of forex charting, a trader can track past behavior of a currency, then use that behavior to help predict its movement in the future. Additionally, forex charting allows the investor to monitor patterns and trends of several currencies at the same time. To provide maximum assistance, the charts must be up to date, provide meaningful and significant data, and be compatible with the trading platform used by the forex trader.
Author : Tom Houser