The What Why and Where of Forex Charts
Forex charts can be intimidating to beginners. However, expert traders agree that reading the charts is just like riding a bike. You need to be prepared to take a few scrapes, fall a few times, and then try again. After you get the hang of it, things just get easier. This article will discuss Forex indicators in its most basic concepts. The goal of this article is to inculcate in a beginner the importance of proper identification, analysis, and cross-referencing.
What are Forex Charts
Forex charts are embodiments of data within a specific timeframe. The charts may differ, in that it may be in the form of a pie, line graph, candlestick, band, etc. Remember Forex charts are read and analyzed preferably in this order :
- Identify charts
- Determine which charts are relevant
- Lock in the period of time
- Analyze the chart
- Cross reference the same with other charts
- Formulate a plan of action
- Execute your plan of action
- Always have a stop loss order in place to minimize losses
For example. If you want to determine the overbought or oversold status of a specific derivative you need to look at the RSI. You then cross-reference the RSI with the Bollinger band in order to see if the trend is stabilization or breakout. Next is to check your analysis. Then you need to cross-reference your analysis with other relevant charts. Finally you execute your plan of attack and continually monitor the charts for any signs of movement inimical to your interests.
Why are Forex Charts Necessary?
Charts are simple or complex. However they are nowhere as complex as the data from which the information for the chart are derived. A trader has to understand that a single point in a chart represents hundreds if not thousands of words that have to be read in order to arrive at that specific conclusion. Now take into consideration that a single line chart has multiple points depending on the categories present and the specified period that is relevant.
Another reason for graphs is the fact that the trend is easier to determine and look back into. Without charts you need to leaf thru thick datasheets to cross-reference one point with another, and then another, and another. This goes on and on. Simply put, and to quote a popular cliché “A picture paints a thousand words”. Thus the chart maker is able to provide the audience with relevant information at a glance.
Where to Read Forex Charts?
Now it is time to determine the type of chart to look for. This can be done via the internet, via Forex dedicated channels, via newspaper articles, or via broker information. Forex charts are works in progress. This means you need to check and recheck several times a day, depending on the type of trade and amount of trade you make on a daily basis. Also, you need to ensure that your data is up to speed with most traders, in that your data provider is giving you real time information via the fastest information network possible. This is because accurate data read properly but a few minutes later than the competition is already an opportunity lost.
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