Trading in the foreign exchange market nowadays demands a good grasp of technical analysis and an ability to track currencies by learning the skill of reading live or real time forex charts. For the novice trader this also means locating a source of good online forex charts. Or, even better, if you can get hold of some free chart pattern recognition software for forex and discover how to use it you will be well on the path to trading with a reasonable degree of confidence.
Price charts provide information about currency prices at set time intervals which 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 currency price variations at set time intervals.
Line charts are easy to read and give a general overview of currency price movements which often illustrates well defined patterns in price movements. By contrast, bar charts are harder to read but do give you far more information.
In simple terms, the length of each bar on a bar chart shows the price spread for a specified period and the longer the bar the larger the variation between high and low prices. The opening and closing currency prices are indicated on every bar so that you can see easily whether the price has fallen or risen and just what the price variation has been. Although bar charts can sometimes be hard to read, the majority of chart pattern recognition software packages ease the job of reading bar charts greatly.
Formulated in Japan to analyze rice contracts, candlestick charts are similar to bar charts but are a lot easier to read because they are color-coded. For instance, green candlesticks are used to show prices that are rising while red candlesticks indicate prices that are falling.
The benefit of candlestick charts is that candlestick shapes when viewed in relation to each other produce clear patters many of which have been given names such as ‘Dark Cloud Cover’ and ‘Morning Star’ and once you learn to identify these patterns it is easy to pick out trends in the currency market.
Despite the fact that a real time forex chart can give you considerable information about a particular currency pair this is often supplemented using various forex technical analysis indicators including strength, trend, cycle and volatility indicators which are used to predict both market movements and volume.
The most commonly used forex technical indicators include Moving Average Convergence/Divergence (MACD), Averge Directional Movement (ADM), Stochastic Oscillators, Relative Strength Indicators (RSI), Bollinger Bands and Moving Averages.