Charts Used in Technical Analysis
The study of forex technical analysis is of paramount importance because without a proper comprehension a forex trader will not go far. Part and parcel of technical study, in fact even fundamental analysis, are the study of charts.
There are several types of charts used in forex technical analysis, and a lot of them include the standard bar, line and pie charts used in other financial analysis. However there are some charts that are specifically suited for forex technical analysis.
Candlestick charts are often used for indicating trend reversals. The Open, High, Low and Close values are plotted and using vertical lines, determine the price movement. Combination of candlestick charts result in patterns (with names like "two cows" and "harami").
There are several types of candlestick charts used in these technical charts, but the most basic are the black and white candles. The liens that traverse the period movements of the forex price are marked with a white rectangle when the prices close at a higher level than the opening. If the reverse is true, a black rectangle is illustrated.
A lot of forex technical analysis charts originated in Japan, and the Kagi charts are no exception. In Kagi charts, the forex price movements are displayed as connecting lines illustrated vertically. As with candlestick charts, closing levels are given importance. If market price movements remain the same after closing, the vertical lines remain linked and are lengthened. However, if upon closing the price diverges, a new Kagi line is plotted. It is added in another column and running in the opposite course. If the closing price level matches or exceeds a previous level, the Kagi line thickens. Another Japanese technical chart used in forex analysis is the Renko chart. Here the market pips are represented by "Renko bricks". Measurements are in units, so that a market upsurge of 40 pips will be displayed as ten unit high bricks. These charts are often used in tracking forex price movements.
One of the most popular technical charts are Points and Figures charts. The flexibility of Point and Figure charts lend themselves to all sorts of applications in financial markets. There are Point and Figure charts for studying trends, momentum, support and resistance levels etc.
For all the options available, Point and figure charts basically employ two symbols: x and o. The x is placed on the horizontal line (x-axis), symbolizing price increase. The o is plotted on the y-axis and connotes a reduction in price value.
These Xs and Os are laid on a graph and placed in alternating columns. Two other items are included, the reversal number, indicating the ending of a X series, and a box size, which is used to connote the price linked with an area of the grid.
As a forex trader it is important to grasp the meaning of these charts. By learning the types of charts used in forex analysis, you will gain more insight in forex trading.