By James McKee – One of the scariest and most intimidating things about starting out as a forex trader are the complicated charts used to gauge the forex market value for a given pair of currencies. As foreboding as they might appear to a newcomer these charts are one of (if not the MOST) important things to understand when coming into the market to trade. Having up to date and continuous data for the transaction you are considering to enter into is absolutely vital for your success. There are three types of charts available to you for analysis and they are bar, line, and “candlestick” charts. The predominant chart being used by most traders today is indeed the bar chart, but I have decided to discuss the candlestick chart due to its more esoteric nature.
Candlestick charts originated in Japan due to a Japanese rice trader’s desire to view changes in the price of rice within a given period of time. It is a combination of both a line and a bar graph, each bar or “candlestick” represents the range of price movement over a given period of time. This is crucial when you consider that the Forex market is constantly in motion and the value of a given currency could rise or fall in moments. The candlestick is composed of a single “bar” and has a “wick” both above and below it. The width of the candle is used to demonstrate the span of time it covers, and the wick represents the highest and lowest prices the currency was traded for during that period of time.
An advanced application one could apply to a candlestick chart would be Fibonacci retracement, this is a method used to help you calculate the best place at which to buy and sell currency. As with anything else there are no guarantees but it is certainly a helpful mathematics tool. It has been said that the market (stock and Forex alike) is like gambling, and in some respects I’d have to agree with them. Very much like gambling in the market you can calculate your odds of success and bet (or invest) accordingly and if your system is sound you will come out on top overall and that overall profit is what trading is all about.
The software used to create these charts is just as important as the charts them selves, Meta Trader 4 is one of the most popular software suites available to traders and it has stood the test of time for a while now. Featuring a multitude of charting options, customization, and stop loss/take profit warnings to keep your objectives front and center. This software (or something like it) is necessary to pursue your financial goals in the Forex market.
Charts are nothing more than lines and pretty colors without the proper amount of understanding being applied to what you are viewing. Due diligence and effort must be put forth to apply this knowledge in a way that will be profitable. Don’t hesitate to ask questions and read absolutely everything you can about how to develop your trading strategy in conjunction with software such as MT4. Happy trading!
About the Author
Author is a Forex trader and financial analyst residing in Denver, Colorado with 5 years of experience in trading with an attitude of cooperation through education. It is vital to remain in the loop where new technologies are concerned, make sure to stay up to date and aware of forex chartsand developments
