In forex charts, the relative price movement between currency pairs is graphically illustrated over various time frames. Traders and technical analysts examine such charts to identify trends and patterns that can signal reversals, continuations, entry points, and exits.
To gain an advantage in forex markets, many traders utilize forex charting software, along with predictive forecasting software and online trading, to determine the likely direction of a currency pair.
Traders who wish to incorporate technical analysis into their investment decisions can use forex charts to reveal trends and determine where to invest their funds. Analysis of technical indicators and past market prices is used to predict the future movement of an investment. According to these technicians, short-term price movements are caused by supply and demand forces on the market. Technical analysts therefore place more emphasis on the current balance of buyers and sellers than the fundamentals of the asset.
Most platforms’ charting software provides tick data to yearly data on Forex charts in line, bar, and candlestick chart formats. In a forex chart, the x-axis represents time and the y-axis represents the exchange rate.
Electronic forex markets can be traded directly from forex charting software, which users can customize.
Using technical indicators to chart forex
Technical indicators like price, volume, and open interest will be customizable on Forex charts. These indicators are commonly used by active traders to analyze short-term price movements.
Technical indicators fall into two basic categories:
- An overlay is a type of indicator that does exactly what it sounds like. On a stock chart, they can be plotted above prices using the same scale. Bollinger Bands® and moving averages are examples.
- An oscillator is a technical indicator that oscillates between a local maximum and minimum, and plots above or below a price chart. An example would be the moving average convergence divergence (MACD) or the relative strength index (RSI).
Technical indicators can be selected from many charting software programs. With thousands of options available, a trader must choose the ones that suit his or her needs. The indicators can also be incorporated into automated trading systems in most cases.
Demo or trial accounts may also be available from brokers for Forex charting software. Before deciding where to open an account, new traders should experiment with several different brokers and charting services.
Several forex chart patterns exist, each of which provides a relatively simple method for currency trading. There are two types of patterns: head and shoulders and triangles.
Dow Theory and Forex Charts
In the history of markets, traders and investors have engaged in technical analysis of investments, but no individual popularized it more than Charles Dow, the American journalist who founded the Dow Jones Company, the Dow Jones Industrial Average (DJIA), and The Wall Street Journal.
In The Wall Street Journal, Dow published hundreds of editorials espousing his theories on technical analysis. Traders who trade the foreign exchange market (FX) today often follow his theories.
Dow’s theory, as codified by his successors at The Wall Street Journal, holds that asset prices move as a result of trends resulting from the dissemination of new information. The Dow theory emphasizes the importance of volume analysis in understanding market dynamics, and forex traders who heed its advice usually discount changes in exchange rates caused by low volume.
Don’t overcomplicate forex trading
While it may be beneficial for some to learn the intricacies of forex charting and how to implement Dow theory with the use of forex charts, the average retail investor in forex doesn’t have the time or inclination to delve so deeply. If you want or need a more relaxed approach, check out the tools provided by Telegram.forex to help investors understand forex and maximize their profits. Set up your account today.