Trading in the foreign exchange market today means having a sound understanding of technical analysis and in particular an ability to keep track of currency pairs by learning the skill of reading live or real time forex charts. For the novice trader this also means finding a source of good online forex charts and, better still, free forex charts. Even better, if you can find yourself some free chart pattern recognition software for forex and learn how to use it you will be well on your way to trading with a fair degree of confidence.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals.
Line charts are easy to read and give a broad overview of price movements which often allows you to clearly define patterns in price movements. By contrast, bar charts are not quite as easy to read but do provide far more information.
In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices. Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. Although bar charts can be difficult to read, most chart pattern recognition software packages simplify the process of reading bar charts considerably.
Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
The beauty of candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names such as ‘Morning Star’ and ‘Dark Cloud Cover’ and once you learn to recognize these patterns it is an easy matter to identify trends in the market.
Although a real time forex chart can give you a great deal of information about a particular currency pair this is often supplemented using a number of technical indicators including trend, strength, volatility and cycle indicators all of which are used to predict both movements in the market and market volume.
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