Is Forex Trading Charts Important in Your Trading Journey?
The movements in the price of currency are represented by numerical figures usually accurate to within 4 or 6 decimal places and also in graphical terms with a currency price chart. The pricing chart is mainly used as the essential instrument when performing any form of technical analysis. In order for a trader to increase the chance of a winning trade, the analysis needs to be performed on the currency pair being traded to try and get a level of confidence about the right entry and exit points into and out of the market. This analysis can be both technical and fundamental in nature and it is significant for a trader to be skilled in both.
It is no great shock that technical analysis deals with the technical factors influencing the price movement, factors that are definitive and measurable. In order for any technical analysis to be undertaken the information regarding the currency in question is displayed on a trade price chart. This way a trader or analyst can easily interpret the data being looked at as well as factor in any further influences they may think will affect the currency’s’ movement. Analysts and traders who view themselves as technical first and foremost employ pricing charts as their primary tool for collecting data and calculating their present and forward strategies.
A major advantage of Forex charts is their adaptability. An analyst or trader can look at a selected time period of data whether that in seconds, minutes, hours, days or weeks. The adjustability of a trading chart allows a trader to configure it exactly as needed. So if the strategy requires multiple entries and exits every day (scalping) then the chart can be set to show a very narrow time frame with great detail. Conversely, if a longer time frame is required, so trends and repeat patterns can be highlighted then this can be done easily as well. So charts can help traders whatever their selected strategy may be, both short and long term.
So the Forex chart is now showing the correct time intervals to be useful to the technical trader’s strategy. This is just the starting point from which the important data has to be looked at and analyzed. The many chief indicators that technical traders and analysts use are:
- Volume Indicators
Volume relates to the quantity that is traded in the period and signals the strength of a price move and the likelihood that it will be maintained. Volume is used to affirm a trend in price and usually, when looking at volume analysts will calculate the ‘On Balance Volume’ (OBV) - Momentum Indicators
Momentum measures the strength of a particular trend and the common momentum indicators that are used are the ‘Relative Strength Index’ (RSI), Moving Average Convergence / Divergence (MACD) and Stochastic. These momentum indicators will allow the viewer to find the oversold and overbought areas of the chart and measure the divergence of the signal lines. - Moving Average Indicators
This indicator is utilized as trend follower; it takes the averages of the price and effectively smoothens out the price line. It is placed on top the price chart.
This is only the beginning of the depth of technical analysis that can be performed using trading charts but you can see why many Forex traders spend a great deal of time learning the different technical indicators, how to interpret them and ultimately use them to guide their trading decisions.
To complement the technical aspect to trading is a fundamental analysis which looks at outside influences that may well affect currency prices. Fundamental analysts schedule key financial and economic decisions and announcements into a global calendar so that they are prepared for the effects these may have on the foreign exchange market. Of particular interest would be national or federal budget announcements, GDP figures including official projections as well as unemployment figures and interest rates. Planned or expected decisions such as these often impact the Forex market but often unplanned events can have a bigger effect, such as terrorist attacks or natural disasters.
Charts are a crucial requirement to perform technical analysis but some traders trust these charts alone to guide their decisions and disregard all fundamental factors. This is a mistake as many traders, especially non-professional traders cannot react quickly enough to market reactions to fundamental factors. Regardless of traders preference toward either technical or fundamental analysis it is undeniable that unless you use both of them, trade charts won’t help you that much in achieving your Forex trading goals.
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