Using Line Charts in Forex Trading

The most commonly used type of chart in Forex trading, is known as the line chart. They are quite popular, especially among beginners. One of the reasons why these kinds of charts are popular among beginners, is because not only can they be very effective, but they are very simple and easy to use.

The Forex line chart is a style of chart that is constructed by connecting a series of data points together, in other words currency pair prices, over a specified time period in order to form a line. The line chart is the most basic style of chart used in Forex trading and in finance, in general. They allow currency traders to see how a particular currency pair’s price has moved over a specific period of time, as specified by the individual trader. For example, a Forex trader might use a line chart to see the price action of GBP/USD over the past 6 months.

Line charts are generally better for Forex traders who wish to take advantage and ride long-term trends, but also for those who wish to find correlations between different currency pairs and other variables, including commodities and trade defects. These sorts of charts tend to be provided by all good online Forex brokers. If you have a good broker, you should be able to access line charts from within your trading platform. These are better to use, since the prices you will see on the ones provided to you by your broker’s trading platform, will reflect the prices that you are actually given. Also, it is obviously a lot more convenient to use a line chart that is located within your Forex trading platform, rather than using one from an external source.

These types of charts tend to be effective when trading currencies, mainly because they are so simple, easy to use and keep track of. Line charts can be used very easily to spot directional changes in the prices of different currency pairs and exchange rates.

One disadvantage of using line charts, especially long-term ones, is that they do not show daily and short-term price volatility. Also, many Forex traders deem these types of charts as just too simplistic. Although they can be good for beginners just starting out, they perhaps aren’t ideal for all currency traders. You can notice how simple these sorts of charts are, by comparing them with other types of Forex charts, such as candlestick charts.

In conclusion, line charts are used in Forex trading by beginners mainly, however all kinds of traders and investors can take advantage of these types of charts. They are particularly good for those who want to avoid complexity and for those who dislike technical analysis in general. However, if you are serious about trading currencies in the Forex market, you might want to consider using other kinds of charts too in addition to line charts, as they are very simplistic. They can be used to spot long-term trends and Forex traders can make a lot of money by using these sorts of charts, but more experienced traders and investors typically use more sophisticated chart types to spot trends.

How Technical Analysis Can Fail

Although there are other aspects of technical analysis in Forex trading, it mainly comes down to price charts, graphs and indicators. Some Forex traders rely heavily on the use of this type of analysis, but it doesn’t always work.

Technical analysis is all about past price history and those who use this type of analysis a lot, try to look out for forming trends and patterns, in the Forex market. These trends and patterns allow Forex traders to profit, by riding them. They are identified predominantly through the use of technical indicators in conjunction with price charts and graphs. The problem is that technical analysis is all about the past and the histories of currency pair prices; history doesn’t always repeat itself and especially not in the financial markets, which includes the currency market.

Some trends and patterns do of course repeat themselves and continue to grow over time, allowing many to take advantage of them and profit. However, technical Forex traders are always subject to the risk of their trends and patterns failing on them. Technical analysis can definitely work, but it is debatable whether or not it works most of the time.

There are a number of ways in which technical Forex traders can make profits, using technical analysis. They can use support and resistance lines, candlesticks and wave patterns – just to name a few ways. There are many, many ways in which a Forex trader can conduct technical analysis. There are many technical currency traders and each one will their own different methodologies, when conducting their technical analysis. So, ultimately it is the individual Forex trader and their own methodologies that are responsible for their success.

You can’t really blame this type of analysis if one of your trades goes wrong in the FX market, but you should perhaps consider blaming either yourself or your methodologies (your price charts, graphs, indicators used and so on). There is too much to technical analysis, to say that this type of analysis doesn’t work as a whole. In reality, it is all about finding what does work for you, when you conduct your own technical analysis.

This sort of analysis doesn’t always work and it can fail, but anyone can use it effectively. Remember though, fundamental analysis is equally as important and regardless of which type of analysis you prefer, you should conduct both types as they compliment each other very well.

In conclusion, technical analysis can fail, but it can also render significant profits if carried out effectively. Different people will use different methodologies when conducting their own analysis of this type, but at the end of the day, you just need to find what works the best for you. If you carry out this type of analysis and you make a loss, then consider changing up your price charts, graphs and indicators. You just need to persevere. Eventually, with enough perseverance, you will discover how to conduct this kind of analysis that will make you good money. Do keep in mind though, that you must also conduct adequate fundamental analysis, in order to prevent yourself from entering the Forex market half-blind.

Twelve Candlestick Patterns That Can Signal Trading Opportunities

Ever since candlesticks have become a major trading tool, users of the systems have continually tracked and monitored the different candle patterns and have developed 12 major candle types that you should be aware of, in order to use them effectively. These patterns must be learned so that when they appear you can take advantage of market pricing that usually occurs next. These candles are called major patterns because they occur with such frequency that you can have profitable trades when they occur. Utilizing just these major candles can provide you with an efficient and profitable trading system. Subsequent patterns do have an effect on what happens so you cannot live in an isolated bubble when using candlestick trading patterns.

The Doji is a pattern that has the open and close very close together. The Doji is most often occurs when there is indecision in the market and is usually a sign to stay out for the moment.

The Gravestone Doji occurs when the open and the close are both very close together and occur as the low price of the day. This candle is most often found marking the end of an upward trend and is usually seen as a reversal candle.

A Long-Legged Doji is marked by the opening and the closing price being very close together but with the high and low price having moved significantly in each direction. This type candle often marks the beginning of consolidation in the markets as the majority of traders have lost their sense of direction.

A Bullish Engulfing candle is usually found at the end of a downward trend. It consists of two candles with the first candle being a relatively short candle showing downward motion and the next body of the next candle completely covers the previous candle and shows upward price action. This begins to show buying pressure on the market as a downward move slows down.

The Bearish Engulfing candle pattern is just the opposite of the bullish engulfing pattern. It shows that selling pressure is overtaking buying pressure and that a retracement is likely in the near future.

Dark Cloud Cover Patterns is a two candle pattern that is usually found at the end of an upward move. The first candle shows upward price movement but the second day show a higher high that the previous day and a higher low but the day ends below the previous day’s closing price.

A Piercing candle pattern is the exact opposite of the Dark Cloud Cover and is usually found at the reversal of a downward trend.

The next two patterns are similar in nature and they are called the Hammer and the Hanging-Man. Both candles have long shadows and the top of the candle has both the open and the close. When found at the bottom of a downward trend it is a hammer meaning the market has hammered out the bottom of the market and when found at the top it is a hanging man that has been left as the market begins to move down.

The Morning Star signals a reversal of the market at the bottom and is a three candle pattern that consists of one down candle followed by a short upward candle that has a high and low below the previous candle and the final candle is an up candle that has a higher high low and higher high than the previous day.

The Evening Star is once again an opposite pattern to the Morning Star candle.

The final pattern that we will discuss is the Shooting Star. This pattern consists of multiple candles each with higher lows and higher highs. When occurring at the top of a trend points to a reversal of the trend but when it occurs at the bottom points to a bullish move in the market.

In conclusion, once you have seen the types of candles that are available to make trading decisions on, you should spend some time learning to spot these patterns on a regular basis. Traders and investors in the Forex market, should ideally spend some time learning about these candle patterns, in order to try and find multiple confirming signals that will help to make their Forex trading much more profitable.

Candlestick Patterns for Forex Trading Profits

Originally developed for predicting and projecting future rice prices, Japanese Candlesticks have been used by traders in all types of equities, commodities and financial markets for centuries. The exact point and time this tool was developed remains a mystery but it has become one of the most used technical trading tools available for use today. They have proven to be reliable over time and that is why they are still used today. After centuries of refinement candlestick trading has become a science that can be used to make you a more profitable trader.

Forex traders often refuse to take time to learn the history of the tactics and technical tools that they use on a daily basis. This leads them to not understanding the limitations of the tools and how to best utilize the limitations of the tool in an effort to profit. The quote begins “If we fail to learn from history,” says a lot about learning the background of the tools that can make us the most money. Often traders refuse to look at what makes a tool work and today we will see the history of the candlesticks that make them work.

Japanese rice merchant Munehisa Homma started to plot the price of rice in the 18th century. At the time the markets were ruled by fear, greed and a herd mentality (much like there are today). However, he found a way that by tracking the price at certain points he was able to see patterns that developed during the day that provided him information on how the market would react the next day. He tracked the opening price, closing price as well as the high and low prices of the day and when it was drawn on a chart had the appearance of a candle, thus the name candlesticks. Over time his patterns proved so profitable that he is said to have amassed a fortune greater than $10 billion dollars in today’s money.

A single event does not make a pattern, but seeing the same price action occurring after seeing a particular formation occur frequently does make a pattern and patterns can be counted on to repeat in the same fashion as they have in the past. Candlestick patterns have proven to be profitable and in an effort to develop a visual way of marking these profitable patterns Muneisha began to label the patterns so that they could be used over and again by himself and his traders. The names he chose to use came from basic military formations of the time.

In conclusion, candlestick patterns can be very effective and useful in Forex trading and be used to deduce more Forex trading profits. Some candlestick patterns can be more profitable than others and some are seen more often than others. As with all trading systems and education, you must learn to use the information by observation and practice in the real world. Patterns do not always follow the exact line each time but they do provide us with a starting point from which to base our trading style.

Simple Moving Averages Explained

The simple moving average (SMA) has been around for as long as there have been trading markets and is one of the most common indicators in all financial markets. This indicator is used to smooth the visual effect of price volatility allowing you to see a very clear picture of the price movement and of changing trends in the market. The SMA is often use in conjunction with another moving average in an effort to find a confirmation signal of a changing trend. The SMA is comprised of two variables, the first being the period and the second being the price of the currency pair. The time period can be any period but if you are dealing with short time frames it is best to use 20 time periods or less and for longer time frames you should use more than 20 time periods. The price can be calculated using the open, close, high or low price, however, the most common price used is the closing price of the currency pair.

The simple moving average is calculated by choosing a number of periods of time and then choosing the setting of the price. By adding up the price during those time periods and dividing this sum by the number of time periods you get an average that can be plotted on the chart. By moving forward you begin to develop a group of average prices that will give you a plot on the price chart. However, the simplest way of doing this is to allow your charting software to plot the SMA for whatever time periods that you desire. The gradually changing line can act as both support and resistance for the current price and when used with another time frame the crossovers are often traded as a signal of a market reversal.

The SMA is usually used next to the price candles so that it can be observed at the same time as the price action is watched. Although some traders use it along with other indicators such as the MACD or the RSI in an effort to see the changing trend of these indicators more easily and looking for changes in their relative positions that mark possible changes in the trend.

All moving averages are considered lagging indicators since they can only be plotted after the price has closed. In this way, other traders may place trades when the price moves below or above the current simple moving average as this also can mark the change in a price trend. The real beauty of using the SMA is in its pure simplicity. Choosing a short number of time periods when using the SMA leaves you vulnerable to not having enough data input to make good decisions while too many time periods makes the SMA so flat that by the time price moves against it there is a distinct possibility of the reversal being over.

In conclusion, the simple moving average is very easy to read and very easy to gather information from, however, you must always remember that it is a lagging indicator and is most often used best with other confirming indicators.

Picking Tops and Bottoms to Maximize Your Profits in the Forex Market

The pinnacle of being a great trader is often thought of as being able to foretell the absolute top of a trend or the pure depth at the bottom of the market and then being able to place an order that rides all the way to the absolute end of the trend, before getting out with maximum profits in both directions. While this is the scenario dancing around in the heads of many traders, both novice and experienced alike, it rarely if ever happens regardless of the hype produced by hucksters trying to sell you their latest Forex trading course or proving that their paid signals provide the best profit for your dollars. Picking tops and bottoms is a futile and losing exercise and leads to frustration and capital losses that are almost irrecoverable.

Many traders today are more interested in how many winning trades versus how many losing trades that they have when what they should be worried about is how much they profit from winning trades and controlling their losses so that any profits are not given back. Over trading, emotional trading and trading without discipline are the main components that make up a losing trader. Over trading occurs when someone has a string of 2 or maybe 3 successful trades and believes they have the market in their pocket. Emotional trading picks up on this and kicks in when a trader wants to get revenge on the market for a recent loss or is caught up in the euphoria of their winning trades. Undisciplined trading is a combination of all these but usually starts with impatience and unrealistic goals about what trading can and cannot do for you.

This brings us back to attempting to pick the top or the bottom of the market and then trade the reversal. Often times all technical indicators and even fundamental indicators are signaling a reversal and so many traders jump in and place orders that are contrary to the market trend based on their reversal signals. However, all experienced traders understand that the markets work in conjunction with natural laws. These natural laws pertain to psychology, motion and mathematics and in the case of a reversal; Newton’s first law of motion always plays a part. Paraphrased for the Forex Market it reads like this: A trending market continues to trend until the balance of the trades force a reversal of price.

This is often seen by small traders acting on the fundamental news or the first technical sign that a reversal is going to occur and then being stopped out just to see the market dip and reverse within hours or days of them losing money. Losses of this type often lead to over trading, emotional trading and a total loss of discipline due traders being affected by the reversal soon after their being stopped out.

In conclusion, trying to pick the top or the bottom of the market rarely works out. Listening to those trying to tell you their system will pick high percentages of these reversals is also not very intelligent. Most indicators are trailing and while they look good after a trade has been placed, seldom do you get the same results when trading live. The signals are too ambiguous. Work hard to develop a feel for the market, place trades you know have a high probability of success and wait for the trend to actually turn before placing a trade in the opposite direction.

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