Forex Trading - Technical Analysis For Beginners

One of the ways to analyze Forex market is using chart patterns and technical indicators. Another approach is fundamental analysis, that looks at economic and social factors such as the health of the national economy, political events etc., while there the first method that uses Forex charts and indicators.

Technical analysis is based on analyzing chart patterns. Ideally you need to look at past chart data and recognize the patterns that precede or follow the trends. Once you learn to recognize the patterns you will be ably to predict the future price movement to some extent.

There are three types of Forex charts:

- First one is line chart

Line chart is simply a line that connects closing prices. The line can fall or climb up showing the main direction of the price movement. The drawback of this chart is that it does not show you the price movement inside the given time period. The only thing we can see is the closing prices.

- Second is bar chart

A bar chart represents the Forex price movement by vertical lines or bars. The top of the line represents the highest price during that time period. The bottom of the line represents the lowest price during that time period. A short horizontal bar on the left side shows the opening price and a short horizontal line shows the closing price for that particular time frame of Forex price movement:

This type of chart called OHLC charts because they show the open, high, low and close.

- Third is candlestick chart

The information presented on the candlestick chart is the same as information on bar chart. The only difference it is graphically better shows the tendency inside the time period.

Like bar chart candlestick shows the price movement in vertical direction. The same way as for bar the top of the candlestick is the high for the period and the bottom of the candlestick is the low of the price for the period. However the major difference is the body. Different color of the candlestick body represents the different tendency of the price withing the given period. The common colors are red for falling price and green for rising. However different charts may use different colors.

Therefore many traders prefer the candlestick charts over bar or line charts, because they easier to read and interpret. It is very easy to see the trends and turning points in candlestick charts. Since different trends will have different color.

Successful traders always take advantage of emerging trend. You probably heard the famous expression “Trend is your friend”. Therefore the ability to recognize the forming trend is of the major importance of trader’s success. Candlestick chart is a great tool in helping to develop this skill.

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