Last Updated on Apr 8, 2020 by James W
Why is it important to be able to read price charts
Reading the stock chart in forex trading is a base and a necessary skill that is needed to conduct a good analysis of the market and successful trading in the future. As in reading, in order to read a book, you need to know the letters, and in trading, to learn to read charts on the stock exchange, you need to know the basics. Let’s talk about them in this article. A price chart or chart displays the change in the price of a financial instrument over time. This allows you to visually assess the dynamics of the movement and make a forecast.
Types of charts
In trading on the stock exchange, charts are needed in order to display the main parameters of prices in a convenient visual format. Charts are often used by traders who make a lot of deals in one day: with active trading, the decision on the transaction should be taken at lightning speed, it is simply inconvenient to analyze the data from the tables. The list of the most popular charts includes:
- line charts;
- bar charts:
- candlestick charts.
Each kind of chart has its own peculiarities.
This format of displaying changes is perceived by the eye easier than numerical data and can visually show what happened to the price and how quickly it changed during the week.
It is convenient to track the change in time of anyone parameter using a linear chart. There are four parameters in our table — of course, you can show them all on one chart with curves of different colors, but the visibility will suffer from this. It is more convenient when the graph shows the change in one or two parameters.
Candlestick chart – a type of chart with additional data on price movement over a time period. If the line chart shows only the closing price, then the candlestick chart shows all the data from the table: the opening and closing price, the maximum and the minimum value of the price for the trading session.
The bar chart shows the same parameters as the Japanese candlesticks. The only difference is in the display.
Japanese candlesticks look easier to perceive, but the bar chart is still popular with traders in the West.
You can determine the price movement inside the bar by its “ears” – horizontal lines on its body. The left ear indicates the opening price and the right-the closing price of the bar. If the left ear is higher than the right-the price has fallen and the bar will be red. If the left is lower-the price has risen, the bar will be green.
What is a timeframe
In addition to trading strategy, initial Deposit, money management rules, the choice of timeframe on Forex is also important. The timeframe is the minimum time interval to which the chart element corresponds. For example, H4-candle is formed within 4 hours. In MetaTrader, the intervals from minute to week are available by default, each has its own characteristics.
The price of an asset in the Forex market
Forex trading, no matter how risk-free it is, can not only bring big profits in the short term but can also go to the loss in the case of a small mistake. However, there are ways to predict the behavior of the market. For this purpose, there are different types of analysis. These two types of analyses are completely different from each other and their impact on the market as a whole is different. But their combined use in trading can make it as successful as possible.
Technical analysis involves the analysis of the movement of the price of an asset in a certain time period. For this type of analysis, a huge number of functions are built into the trading terminal. Thanks to them, you can plot the future price movement and its direction.
The second method of market analysis is aimed at studying the external factors that affect the movement of prices in the Forex market. This analysis takes into account:
The economic situation in the world and major economic centers in the presence of the crisis, its dynamics or the opposite of development and its pace.
Only the application of both types of analysis can make Forex trading as effective as possible. Against the background of the absence of serious news, technical analysis can bring its dividends, and when the information that needs to be taken into account, fundamental analysis can compensate for the lack of technology.