There is one very important factor that you should consider with great care if you are willing to become a successful, profitable Forex trader. This ever important factor that must be always present in the trader's portfolio, is the ability to read the charts.
The beauty of FOREX charts, as opposed to charts used for, say, daytrading stocks, is that they are pretty easy to interpret and use. They're a reflection of a slower-moving, stable economy (the one of a country) compared to the future and daily drama of company reports, Wall street analysts and shareholder demands.
And, unlike stocks, currency charts rarely spend much time in tight trading ranges and have the tendency to develop strong trends (even though the FX market may be volatile, it's more predictable). And, rather than tens of thousands of stocks to analyze, you only have a few mayor currencies to trade.
There exist three kinds of famous charts:
Line Chart : The line chart is a graphical depiction of the exchange rate history of a currency pair over time. The line is constructed by connecting daily closing prices.
Bar Chart : The bar chart is a depiction of the price performance of a currency pair, made up of vertical bars at set intraday time intervals (e.g. every 30 minutes). Each bar has 4 'hooks', representing the opening, closing, high and low (OCHL) exchange rates for the time interval.
Candlestick Chart : The candlestick chart is a variant of the bar chart, except that the candlestick chart depicts OCHL prices as 'candlesticks' with a wick at each end. When the opening rate is higher than the closing rate the candlestick is 'solid'. When the closing rate exceeds the opening rate, the candlestick is 'hollow'.
There are also such types of charts as:
- Volumetric Japanese candles (Candlevolume)
- Equivolume charts
- Point and Figure, as named XO, or crosses-zero
- Three-Line Break
- Renko charts
- Kagi charts
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