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TradingCurrencyOnline.com
Presents...
How to read
FOREX charts
There are
basically two fundamental approaches for trading
currencies online:
1)
Fundamental Analysis. This approach doesn’t rely on FOREX charts but instead uses political and economic
factors to determine trades. Charts are basically
only used as reference for entering and exiting
trades.
2) Technical
Analysis. This approach on the other hand attempts
to predict where prices are going by analyzing
historical price activity on a chart just like the
one below. Technical analysts study the relationship
between TIME and PRICE.
TradingCurrencyOnline.com will focus on technical
analysis of charts because this is the approach used
by most traders.
Let’s start
at the beginning.
Since the
EUR/USD is the most traded currency pair, we will
use it in our examples.
In the
previous sentence notice how
the USD is on the RIGHT hand side of the forward
slash and the EUR is on the LEFT hand side?
How the
currencies are expressed in relation to one another
in the “pairing” is very important.
FOREX charts
always display how much of the currency on the RIGHT
hand side it would take to BUY one unit of the
currency on the LEFT hand side.
If you look
at this chart you will notice the last price
displayed on April 22nd, 2004 is 1.1835. This number
is highlighted in black.
TIME is
always recorded horizontally across the bottom of a
chart with the PRICE scale being displayed
vertically along the right hand edge.
Technical analysis of charts is all about examining
the relationship between TIME and PRICE. This will
become clearer as we go.
Looking at
the current price on this chart tells us that in
order to purchase ONE Euro on April 22nd, 2004 it
would cost you $1.1835 or just over one dollar and
eighteen cents.
The price scale on the right hand side of FOREX
charts always represents the currency to the RIGHT
of the forward slash so again in this case the
prices you see on this chart are representing the US
Dollar.
Study this chart for a moment.
Notice how that during the TIME frame of this
particular daily EUR/USD chart the PRICE of the US
Dollar fell and rose in value against the Euro from
a high of just over $1.24 to a low of about $1.17.
When the prices on the EUR/USD chart decline, this
means the Dollar is strengthening against the Euro,
on the other hand if the prices are going up on this
chart, the Dollar is declining or loosing value
compared to the Euro.
By now you're probably wondering what the funny
looking red and blue bars are on the FOREX chart.
The red and blue bars on the
chart are Japanese candle sticks.
There are several different ways to observe the
PRICE/TIME movement on a financial chart, some are:
1) Bars
2) Lines
3) Point and Figure...
...and the most popular for FOREX charts, Japanese
candle sticks.
 Japanese candle sticks are the most animated way to
observe price movement. Many traders rely solely on
candles to base their trading decisions. In later lessons you will
learn how to read candle sticks and discover that
they are constantly painting a picture as to what is
happening on the FOREX chart.
For now we will just learn the basics...
NEXT >>>
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