The Position of Charts in Foreign Exchange Trading
Whilst movements in the currency markets can often appear irregular in nature, over time the aggregated gains and losses in a currency pair’s aggregate value can provide insights into subsequent price movements. Experience enables traders to identify patterns within the charts; information which will in turn facilitate understanding of historic market movements. By integrating these historical insights into their trading systems and strategies, traders are more prepared to anticipate future market movements.The influence of charts on a technical trader’s decision making process is significant. Familiarity with both the format of currency charts and such principles as trends, support and resistance will enable more accurate forecasts of currency pair movements than those undertaken with consideration restricted to the fundamentals.
Using Trends to Identify Trading Opportunities
By establishing the inherent direction of a trend, traders can predict subsequent movement with reasonable accuracy. Whilst any such movement is rarely as obvious as a sustained move up or down, an appreciation for how these price movements can create entry signals is vital for successful trading. For example, where a currency pair’s price sees a sustained move in a given direction followed by a retracement, traders will note that new high or new lows will become evident within the charts; levels which can in turn provide confirmation of an unfolding trend. By incorporating these levels into their trading strategies, Forex traders are far better prepared to identify trade entry opportunities.Trading across Foreign Exchange Time Frames
Again, whilst rarely as obvious as a sustained move up or down, trends are typically referred to as either Up Trends, Down Trends, or Sideways Trends. Evident across timeframes, it is important to recognise that trends can often appear to conflict from one timeframe to the next. As such, an awareness of movement in a given pair’s value across timeframes is not only prudent, but vital for ensuring that trading opportunities identified are likely to result in profits.Successful Foreign Exchange trading is often associated with an awareness of a pair’s movement across timeframes. Three timeframes of significance are often identified. Long Term Trends providing insights into the overriding direction of the pair. Intermediate Trends are shorter in scale, and tend to be somewhat more volatile than Long Term Trends. Short Term Trends are shortest in duration, but tend to be highly volatile in nature. Forex traders will look towards conflicts between timeframes to identify buy or sell signals, with concurrence between timeframes raising viable trading opportunities for those analysing the data.
The Role of Support and Resistance
As mentioned above, trends provide insights into the overall direction of a currency pair’s movement. At the same time though, an awareness of retracement levels will offer the trader a greater understanding into the points at which the pair could either pause or retrace. As these levels will almost certainly influence the pair’s ability to maintain momentum in a given direction, the insights gleaned from one combined analysis of trends and retracement levels can help to ensure that trading opportunities identified are more likely to result in profits. The retracement levels most commonly identified are those of Support and Resistance.Support and Resistance levels represent ranges on a price chart which are likely to see the pair’s value reverse. Whilst these levels are rarely as precise as representing a specific price point, both Support and Resistance levels tend to be interpreted either as a horizontal or diagonal level on a price chart. Whilst Horizontal levels will be apparent as the points at which a pair’s value routinely reverses in light of sustained movement in a given direction, Diagonal levels are less obvious, and involve connecting the pair’s established highs and lows. Diagonal Support and Resistance levels are undeniably less obvious than their horizontal counterparts, however their steplike appearance means that once acknowledged, these insights can provide yet another means of identifying viable trading opportunities.
Familiarise yourself with charts. The insights that can be gleaned from trends, and Support and Resistance levels can enable you to anticipate where the pair is likely to go next.
