There are two types of analysis that investors use to approach their online forex trading. They are fundamental analysis and technical analysis. The differences in the two techniques make it easy for many investors to prefer one method over the other.
Fundamental analysis doesn’t rely on forex charts. In fundamental analysis, political and economic indicators are scrutinized to determine which trades are good. Investors that rely on fundamental analysis use charts as a secondary reference.
Using technical analysis requires that the investor analyze historical price activity to attempt to predict price swings. Investors that use technical analysis study the relationship between price and time.
The most actively traded pair of currencies is the Euro and the US dollar.
When examining the FOREX chart for this pair, the dollar is on the right hand side of the chart and the Euro is on the left hand side. The currencies are expressed in relationship to each other in each pairing.
Forex charges display how much of the currency on the right hand side is necessary to buy a single unit of the currency on the left. The last price displayed for a given date is always emphasized. The time is tabbed across the bottom of the chart and the price scale is displayed along the right hand edge of the chart. The time and the price are set in all caps to emphasize that technical analysis rests upon the relationship between time and price.
Price and time movements are observed on a chart. The types of charts include bars, lines, point and figure, and Japanese candle sticks. Of these, the Japanese candle sticks chart is the most favored method.
Viewing a candlestick chart, there is a large, red section that is the body of the candlestick. Lines from the top and bottom of the body are the upper and lower wicks. The bodies come in varied sizes, and sometimes there is no body at all.
The same is true with wicks. The candle wicks can be many difference sizes including no wick at all. The length of the body and the length of the wick are determined by the price range for the candle. Longer candles show a greater price movement during the time that they were open. The top of a candle wick represents the highest price for that currency while the wick’s bottom represents the lowest price. A currency is bullish when the close of the candle is higher than the open. In other words, there were more buyers than there were sellers during the opening time period. A candle with no wick means that the open price was the highest price of the period, or once opened, it dropped off until it closed.
There is no fool-proof method of predicting a trade, but charts can be helpful since trends can help with the instant decision required by the Forex market.
Many online services provide real-time charts that update along with currency activity. For an up-to-the-minute look at the day’s activities, these services are invaluable. For trading based on historical accuracy using a service can ease the burden of prediction.
Forex trading is generally a combination of fundamental and technical analysis. Charting historical trends and paying attention to political, cultural and economic indicators within a region can be a good way of catching new trends as they occur.
Regardless of trading style, traders must be prepared to take risks. Even the most careful investor will realize a loss from time to time. Investing the mortgage money is not the way to go.
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