FOREX Trading
• What Is
FOREX?
• FOREX
Or Futures?
• FOREX
Or Stocks?
•
FOREX Trading for
Beginners
• FOREX
Terms To Know
•
Preparing for FOREX
Trading
• Is
FOREX Trading Risky?
•
The Philosophy of FOREX
Trading
•
FOREX and Fundamental
Analysis
•
Tools for FOREX Trading
•
Trading Strategies for
FOREX
• Trading Systems
for FOREX
•
Reading and Understanding
FOREX Quotes
•
FOREX Profits and Losses
•
FOREX Technical Analysis
Part 1
•
FOREX Technical Analysis
Part 2
•
FOREX Trading Brokers
• The
FOREX Margin
•
What Are Currency Options?
•
What Are FOREX Signals?
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Online FOREX Trading
FOREX Technical Analysis - Part 2
In part one of this article, we explained exactly what technical analysis
is, and why it is used by FOREX traders. In part two, let's take a look at
the various types of charts that are used for technical analysis, and how
to read those charts.
First, we have Price Charts. These are used to show currency prices during
specified periods of time. You can view prices for the past minute, the past
year, or the past ten years or more. Prices are plotted on the chart using
lines, bars, or candlesticks.
A Candlestick chart indicates open, close, high and low prices. They were
invented by the Japanese, and are much easier to read than bar charts. If
the candlestick is green, the price is rising, if it is red, the price is
falling. You will see various candlestick shapes on the chart, and when compared
with other candlesticks on the chart, you will be able to see price spreads.
Line charts show the closing price over a specified time period. Line charts
are very clean, easy to read, and make it possible to spot patterns more
easily. They are not, however, very detailed. If you want detail, you need
bar charts. A bar chart shows opening and closing prices, spreads, and high
and low prices. It shows price variations during specified periods as well.
You need more than price charts for technical analysis, however. You also
need technical indicators. There are strength indicators, volatility indicators,
trend indicators, and cycle indicators, as well as many other indicators.
These indicators are used to predict and analyze market movement and volume.
In technical analysis, you will use indicators such as Moving Average
Convergence/Divergence (MACD), Average Directional Movement Index (ADX),
Relative Strength Indicator (RSI), Stochastic Oscillator, Moving Average,
and Bollinger Bands.
The Moving Average Convergence/Divergence (MACD) shows the relationship between
two moving averages, and the basic momentum of the market. When the MACD
line falls below the signal line, it is an indication of a weak market, when
it crosses the signal line, it is a strong market.
The Average Directional Movement Index (ADX) determines if a currency is
starting an upward or downward trend, and it also dictates how strong that
trend is. If the ADX is over 25, this is an indication of a strong trend,
with higher values.
The Relative Strenth Indicator (RSI) indicates the highest and lowest prices
over a specified period of time. The scale goes up to 100, and anything above
70 is over bought, and anything under 30 is over sold.
The Stochastic Oscillator shows the weakness or strength of a currency market.
It compares a closing price to price ranges over a specified period of time.
When the stochastic oscillator goes below 20, it means that a currency has
been over sold, when it is above 80, it means that the currency has been
over bought.
The Moving Average is the average price of a currency for a specified period
of time, as compared with prices of other currencies during the same time
period or similar time period. As an example, the moving average of closing
prices over three days would be determined by the total of the three days
closing prices, divided by three.
Bollinger Bands contain the marjority of a currency's price. Three lines
make up a band, with the middle line indicating the average price, while
the upper and lower bands track the movement of the price. When there is
a large distance between the lower and upper bands, it is an indication of
a volatile market, and if one of the bands touches a bar or candlestick,
it means that there are over bought or over sold conditions as well.
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