You can analyse the foreign exchange markets by using two methods, forex technical analysis and fundamental analysis. The former works by studying the movement of prices, whilst the latter looks at certain economic factors such as the strength of our national economy and certain political events.

When you study the price movements with technical analysis, you need to analyse charts. You should be able to identify trends by looking at the history of certain currencies. So then you can predict whether or not a currency is going to rise or fall. If you spot something that you can take action on, you have a great opportunity right in front of you.

There are three types of forex charts:

1. Line Charts

These line charts for forex simply plot every currencies closing price and joins them with a line. When these lines rise or fall that shows the general movement of that currency value. However, it only shows the close, not the movements within a trading period.

2. Bar charts

Bar charts consist of a series of vertical bars. The top of the bar will represent the highest price during a certain time period. The bottom of the bar will represent the lowest. Two horizontal bars can also be seen on these bar charts, one on the left to indicate the opening price, and one on the right to indicate the closing price.

3. Candlestick charts

Candlestick charts are usually easier to read than the above charts. They’re quite similar to bar charts, except the information is a little bit easier to read. On these the same vertical bars or lines are there, showing high value and low value, but there’s a block in the middle showing the gap between opening and closing price. The colors of the bars will usually be the same, green or blue for rising and red for falling, but sometimes they may vary.

There’s a popular cliché word that traders live by and that’s “the trend is your friend”. When you see a trend forming, you can make money by trading according to the emerging trend. You can usually spot these trends better by using the candlestick charts.

By: Jay Robert Edwards

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