Forex Charts and diagrams

Forex charts are based on market action involving price. Charts are major

tools in Forex trading. There are many kinds of charts, each of which helps to

visually analyze market conditions, assess and create forecasts, and identify

behavior patterns.

Most charts present the behavior of currency exchange rates over time. Rates

(prices) are measured on the vertical axis and tim e is shown of the horizontal

axis.

Charts are used by both technical and fundamental analysts. The technical

analyst analyzes the “micro” movements, trying to match the actual

occurrence with known patterns.  The fundamental analyst tries to find

correlation between the trend seen on the chart and “macro” events

occurring parallel to that (political and others).

What is an appropriate time scale to use on a chart?

It depends on the trader’s strategy. The short-range investor would probably

select a day chart (units of hours, minutes), where the medium and long-

range investor would use the weekly or monthly charts. High resolution charts

(e.g. – minutes and seconds) may show “noise”, meaning that with fine details

in view, it is sometimes harder to see the overall trend.

The major types of charts:

•

Line chart

The simplest

form, based upon

the closing rates

(in each time

unit), forming a

homogeneous

line. (Such chart,

on the 5-minutes

scale, will show a

line connecting all

the actual rates

every 5 minutes).

This chart does not show what happened during the time unit selected

by the viewer, only closing rates for such time intervals. The line chart

is a simple tool for setting support and resistance levels.

•

Point and figure charts - charts based on price without time. Unlike

most other investment charts, point and figure charts do not present a

linear representation of time. Instead, they show trends in price.

Increases are represented by a rising stack of Xs, and decreases are

represented by a declining stack of Os. This type of chart is used to

filter out non-significant price movements, and enables the trader to

easily determine critical support and resistance levels. Traders will

place orders when the price moves beyond identified support /

resistance levels.

•

Bar chart

This chart shows three

rates for each time

unit selected: the high,

the low, the closing

(HLC). There are also

bar charts including

four rates (OHLC,

which includes the

Opening rate for the

time interval). This

chart provides clearly

visible information

about trading prices

range during the time

period (per unit)

selected. 

•

Candlestick chart

This kind of chart is based on an ancient Japanese method. The chart

represents prices at their opening, high, low and closing rates, in a

form of candles, for each time unit selected.

The empty (transparent) candles show increase, while the dark (full)

ones show decrease.

The length of the body shows the range between opening and closing,

while the whole candle (including top and bottom wicks) show the

whole range of trading prices for the selected time unit.

Following is a candlestick chart (USD/JPY) with some explanations: 

Pattern recognition in Candlestick charts

Pattern recognition is a field within the area of “machine learning”.

Alternatively, it can be defined as “the act of taking in raw data and taking an

action based on the category of the data”. As such, it is a collection of

methods for “supervised learning”.

A complete pattern recognition system consists of a sensor that gathers the

observations to be classified or described; a feature extraction mechanism

that computes numeric or symbolic information from the observations; and a

classification or description scheme that does the actual job of classifying or

describing observations, relying on the extracted features.

In general, the market uses the following patterns in candlestick charts:

Bullish patterns

: hammer, inverted hammer, engulfing, harami, harami

•

cross, doji star, piercing line, morning star, morning doji star.

Bearish patterns

: shooting star , hanging man, engulfing, harami,

•

harami cross, doji star, dark cloud cover, evening star, evening doji

star.

Chart system available at

Easy-Forex™

Trading Platform

The Easy-Forex™ Trading Platform offers the following charting tools, for both

professional and beginner traders.

The chart types:

The time scales:

The view types:

The "drawing line on the chart" types:

The Study types:

Please note: the above screen-shots were taken around mid-2006. The Easy-Forex™

platform continuously upgrades its system, while adding new features on a regular

basis.