Forex Trading Charts

Written by Jacey Harmon
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A chart is a visual representation of the price history of a currency. There are two common types of charts traders use: bar charts and candlestick charts. A candlestick chart is more colorful and provides greater visual detail than a bar chart. A chart's time frame can be manipulated to show various lengths of time: intraday, daily, weekly, monthly. Traders use charts to identify: trends, trading patterns, entry points and exit points.

Forex Chart Patterns and Other Indicators

Traders use chart patterns to identify key shifts in market direction. The "three white soldiers" pattern is a common bottoming reversal pattern. Found on a candlestick chart, this pattern is used to recognize a change in market sentiment from bearish to bullish. The pattern consists of three long positive candles after a decline. The "three black crows" pattern is similar to three white soldiers but is a bearish signal instead of bullish and occurs after an advance.

A doji is when a currency's closing price is equal or near its opening price. This pattern may indicate a future shift in the price trend. A hammer pattern can be used to indicate when bearish pressure has abated. This pattern forms when a currency trades significantly below its opening price only to reverse and close higher, creating a "hammer" on the candlestick chart. An inverted hammer is similar to a hammer but upside down and bearish not bullish.

Chart patterns aren't the only useful indicators traders use with charts. Moving averages can help a trader see if a trend is likely to continue. A break of a long-term moving average can indicate a major shift in price trends. Stochastics are used by traders to anticipate tops and bottoms. When the stochastic--a complex moving average--diverges from a currency's price a trader anticipates a change in price direction. Don't use just one indicator alone, these types of signals are best used in conjunction with other technical analysis techniques.

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