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Forex Charts in Technical Analysis

Interactive forex charts are an indispensable tool in forex technical analysis. In forex, charts are everything. Without them, the trader would be trading blind. In this article, we will demonstrate the horde of information that can be gleaned from forex charts for the purpose of technical analysis.

Price

The most common way of displaying price information on forex charts is by the use of candlesticks. Given to us by the Japanese in the 1700s and rediscovered by Steve Nison a few decades ago, candlesticks are unique in that they show the open, high, low and closing prices of the currency pairs. Forex charts have been designed in such a way that there are different time frames, ranging from 1 minute to weekly. So depending on the time frame displayed, a single candlestick shows the price activity for that time frame. A single candlestick on the 15-minute time frame candle shows price activity for 15 minutes. It is an established fact that there are candlestick patterns that indicate price reversal points, and price continuation. So just by focussing on price patterns as shown by candlesticks, we can establish where the price of the currency pair is headed and take an informed trading decision.

Patterns

Price patterns are also determinants of future price action and this information can only be obtained from forex charts. Chart patterns are formed when candlesticks come together to form an identifiable pattern that is a determinant of price movement.

 

(Descending triangle chart on EURUSD daily chart)

The chart above shows a classical descending triangle pattern, which is a bearish pattern. Anyone who is familiar with how to trace patterns on the charts will EASILY make money. In this case, following the entry rules for descending triangle would have netted the trader at least 400 pips. Without forex charts, how would a trader know what is about to play out on a currency pair he wants to trade? It would be absolutely impossible.

Technical Indicators

Technical indicators are used in technical analysis. Technical indicators cannot be used in the air; they can only be used in one place and that is on the forex charts. Forex charts have been improved by brokers to provide some of the best user interactivity that can be provided. Indicators can simply be pasted on forex charts. It is also possible to change the character of the technical indicators by making them bolder, changing the colour of indicator components, adjusting parameters such as periodicity, and combining technical indicators. Without forex charts, all forms of technical analysis would be impossible.

Strategy Building and Testing

Backtesting and strategy building for expert advisors is carried out by obtaining historical data from forex charts. A typical backtest will involve copying historical data obtained from the 1-minute charts and copying it to the higher time frames. Of course, when a backtest is commenced, the expert advisor or strategy being tested will run through the forex charts showing areas at which the strategy will pick trades. Results can then be analysed.

We can clearly see that forex charts are truly indispensable. It would be very hard to carry out successful trading without them.