Forex Technical Analysis, Forex Charting And Trends

Forex technical analysis is one of two main methods used to analyze the forex markets. It is based on a close examination of the movement of prices. On the other hand, the second main method, forex fundamental analysis, observes external economic elements such as the good or bad health of the economy, politicians' statements, etc.

When you apply forex technical analysis to scrutinize price movements, you use currency trading charts. This forex strategy is founded on the assumption that if you review the historical records of past price changes, you will be able to recognize tends and directions that will assist you in foretelling the future movement of prices.

As soon as your charting helps you to identify an emerging pattern suitable for your forex strategies, you have a currency trading opportunity.

Types of FX charts in forex technical analysis

There are three different of currency trading charts:

1. Line forex charts

In line forex charting you mark each closing price and link them with a simple line. The rise and fall of the line acquaints you with the general tendency of a currency pair. However, a drawback of forex line charts is that they only show the close information, they do not give you any details about the changes occurred within a training period.

2. Bar forex charts

Bar forex charts depict a series of bars or vertical lines. The top of the vertical line indicates the highest price attained during that period of time. The bottom of the line shows the lowest. A short horizontal bar on the left side of the bar chart gives the opening price and a short horizontal bar on the right shows the closing price.

In forex technical analysis, bar forex charts are also know as OHLC charts because they indicate the open, high, low and close prices.

3. Candlestick forex charts

Actually, candlestick forex charts give the same details as a bar forex chart, but organized in a different way, which most forex traders find much easier to check and grasp at a glance.

In candlestick forex charts you have the same vertical line with the highest price at the top and the lowest at the bottom, but, in addition, you have a wide block in the middle that indicates the gap between the opening and closing price.

The white blocks represent rising prices and the black blocks indicate falling prices, although increasingly these blocks are sometimes filled with different colors. One of the preferred combinations of candlestick charts for forex technical analysis is green or blue to show rising prices and red to express falling prices.

Most people prefer to do forex technical analysis with candlestick charts than with bar charts because reading them is more user-friendly. Candlestick forex graphs make it much easier to spot turning points in the markets. They show very clearly at what point the forex market changed from a rising trend to a falling tendency or vice versa.

There is a saying in currency trading that goes: The trend is your friend. Indeed, when you spot a trend that is taking shape, you can make a profit by making trades in the same direction as the emerging tendency.

Using candlestick forex charts can help you a lot in learning to establish trend movements properly, which is the most important element in forex technical analysis. They will make it a lot easier too.