Saturday, 12 October 2013

Technical Analysis: - Charts

          Almost 75% of traders make use of technical analysis to plan their entry and exit in currency trading. Technical analysis is nothing a method of evaluating currency pairs by analysing statistics generated by their market activity.

Basic principles of Technical Analysis

  • Market reflects everything.
  • Price always moves in Trends.
  • History Repeats Itself.
Types of Charts:
  1. Line Chart: - Line chart is the simplest form of chart. Only closing price of currency pairs of each day is platted in a line chart. 
  2. The Bar Chart: - Bar charts are the most popular type of charts used in technical analysis. The top of the vertical line indicates the highest price of a currency traded during the day and the bottom represents the lowest price. The closing price is displayed on the right side of the bar and opening price is shown on the left side of the bar. Bar chart is better than line chart because it shows the high, low, open and closing price at the same time. 

  3. Candle Stick Chart: - This type of chart are first used by Japanese to analyse the price of rice contracts. Candle Stick charts also display the open, close, high and low price. In candle stick charting different color's used to show the upward or downward movement of equity.
Important concepts related to Forex and charts
          Few of the important concepts related to charts are discussed below.
  • Support: - Support is the price level at which demand of currency pair is thought  to be strong enough to prevent the price from declining.  Buyers become more inclined to buy and sellers become less inclined to sell at the support level.  After support level is penetrated, it often become the resistance level.
  • Resistance: - Resistance is the price level at which selling of currency pair is thought to be strong enough to prevent the price from rising further. As per logic the price advances towards the resistance sellers become more active and buyers become less active. After resistance level is penetrated it often becomes support level. 
  • Moving Average: - One of the the major concept and easiest to understand indicators; the moving average shows the average value of currency's price over a period of time. By "moving average", we mean that we are taking the average closing price of a currency pair for the last "X" number of periods. Moving average are most often used when compared with other indicators such as MACD, Bollinger Bands, etc.
  • Trends: - A trend is simply the direction in which a price of a currency pair moves over a specific period. If there are higher tops and higher bottoms it indicates the uptrend for the specific period and if there are lower tops and lower bottoms it indicates the down trend for the specific period. When a currency is in uptrend buying at lower support and selling at higher tops suggested. 
  • Volume: - Volume consists of the total amount of currency traded within a day. Volume suggest that there is interest and liquidity in certain market. Low volume warn the trader to go away from the market. A healthy uptrend should have higher volume on the upward legs of the trend and a healthy downtrend should have higher volume on the downward legs.
  • Open Interest: - Open Interest is total outstanding position in a certain currency pair. Open Interest refers to the total number of contracts that have not been settled in the immediately previous time period. A large open interest indicates more activity and liquidity for the currency.

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