Read and analyze technical chart before deciding to buy any asset. To analyze Forex techniques to see what opportunities and challenges there will be trading trends. At the same time, chart analysis helps investors make more profitable investment decisions. To know the current basic technical analysis chart types, please refer to the article below from Forex Trading!
What is a technical chart?
Technical chart are also known as price charts. This is a form of chart used to represent the prices of certain assets such as stocks, bonds, commodities… Technical analysis charts are created by connecting price data points, usually Closing prices in chronological order.
Popular technical chart types today
Currently, there are 3 popular types of technical chart: Regular charts, bar charts, and candlestick charts. Let’s learn about the chart types in detail according to the following information:
Forex technical analysis line chart
Technical analysis charts in Forex in line form are often called Line charts. This is one of the most popular chart types used in Forex trading. This type is created by connecting the closing price points of a currency pair over time. To create a smooth, precise curve.
Outstanding advantages:
- Simple: Line charts easily show long-term price trends and potential reversal points.
- Efficiency in analysis: Line Charts can be used with many different technical indicators. This helps increase the efficiency of technical analysis.
- Applicable in many time frames: Line charts can be applied to many different time frames.
Disadvantages of line technical analysis chart:
- Line charts only show closing prices, so intraday price movements are ignored.
- Can generate false signals, especially in highly volatile markets.
See more: Read candlestick charts: Basic & advanced material
How to use line charts effectively
- Determine price trend: Use the slope of the curve to determine whether the current price trend is up, down or sideways.
- Look for buy and sell points: Use price patterns and technical indicators to look for potential buy and sell points.
- Assess risk: Use support and resistance levels to evaluate the risk of a trade.
The basic technical bar chart
Bar charts are one of the most common types of patterns used in technical analysis. Each bar will often represent a certain period:
- The top horizontal line represents the highest price during that period.
- The bottom horizontal line is the lowest price during that period.
- The horizontal line on the left is the opening price for that period.
- The horizontal line on the right signals m closing prices during that period.
Advantage:
- Bar charts easily show price fluctuations over a certain period. At the same time, it also helps investors quickly grasp price trends.
- This bar format can be used with many different technical indicators such as Bearish Engulfing, MACD, RSI…
- Can be applied to many different types of time frames, from short-term to long-term.
Defect:
- This Forex technical analysis chart only shows the high, low, opening and closing prices. Therefore, price details for that period can be ignored.
Using:
- Determine price trend: Use the length and direction of the bars to determine whether the price trend is up, down, or sideways.
- Place buy and sell orders: Use price patterns or a combination of technical indicators to find buy and sell points.
- Assess risk level: Use support and resistance levels to assess risk level when using a horizontal chart.
Technical analysis in Forex using candlestick charts
Candlestick charts display the opening, high, low and closing prices similar to a horizontal chart. The difference lies in the area between the open and close, known as the body of the candle. The body is usually white or blue if the closing price is higher than the opening price. It also appears black or red if the closing price is lower than the opening price. If there is no difference between the opening and closing prices then the candle body is a horizontal line. The lines above and below the candle’s body are called shadows.
The relationship between open and closed prices can provide insight into determining market trends. Specifically:
- Long green or white candles indicate an increasing price trend. You can place a sell order to make a profit.
- There is also a long red or black candle, signaling a downward price trend. The short stem symbolizes indecisiveness.
Candlestick charts show how bullish or bearish the future market price trend is. Besides, investors often use candlestick charts to determine future price reversals. To make the appropriate decision to place an order to buy or sell. Sometimes, a combination of Bullish Engulfing candle patterns, Japanese candlestick patterns, and reversal candlestick patterns is needed to determine the correct trading trend.
See more: Optimize trading with IC Markets Exchange
Note when using technical charts
To use chart types effectively, investors need to keep in mind the following:
The volume of technical analysis transactions
Technical chart are not 100% accurate prediction tools. Therefore, investors should not rely entirely on it to make investment decisions. It is necessary to combine charts with other analysis methods such as fundamental analysis, price analysis, and market sentiment analysis… to easily make wise investment decisions.
Choose a time frame for basic technical analysis
Forex analysis charts can be applied to many different time frames. Using multiple time frames helps investors get a more general view of the market. At the same time, price trends can be easily identified at many different levels.
Conclude
What is a technical chart? What basic types of technical analysis charts are there today? These questions have been answered and given full information by Forex Trading in the above article. However, investors should note that this chart is only a support tool and not an accurate prediction tool. At the same time, it is necessary to combine technical analysis charts with other analysis methods. Therefore, if after reading the article you have any questions that need answering. Don’t hesitate, to contact us immediately!
FAQS
Why is chart analysis important in financial trading?
Because charts provide investors with a lot of useful information to make accurate investment decisions.
Are Forex technical analysis charts accurate?
No, this chart is just one of the tools to help investors make decisions. This type of chart can’t be 100% accurate.
Does technical chart analysis require experience and knowledge?
Yes, chart analysis requires knowledge of financial trading and index analysis.
