Chart patterns are a way of analyzing markets using technical analysis. There were various charting systems available in the market before the rise of instant price data. Computer software and electronic calculators replaced human beings to do charting.
Today, more than ever, technical analysis is a critical technique to becoming a successful trader because many people are depending on technical analysis to make good trading decisions.
There are 3 main chart patterns
Trend – a series of ups and downs and doesn’t necessarily define a reversal.
scillator – a number moving between 0 and 100. When the indicator is above 70, the market is said to be overbought. More than likely when the indicator is above 20 the market is said to oversold.
cell – a line connecting certain points of a chart.
Any good charting package will have a variety of indicators for these 3 chart patterns. Other indicators can include Bollinger bands, the Stochastic, moving averages, the RSI, and the MACD.
There are some traders who concentrate only on technical analysis and use no indicators. Other traders use a combination of technical analysis and technical indicators. How well you do with technical analysis will depend on your personality.
Technical analysis is a art not a science. There are some techniques that can be used to determine probable support and resistance and this should be done by experienced traders. For beginners, using fundamentals such as news releases and economic reports are good.
Technical analysis doesn’t take into account the current value of a currency, only the history of the value. An analysis of the price history will show whether the currency has been overbought or oversold. This will show you whether the currency is likely to fall or rise.
You can find free technical charts all over the Internet. You do need to be careful when choosing which one to use though. Many of these are not accurate or they come with many flaws. For example, the 95% compacts used in technical analysis are actually made up. When you use these you are forced to pick a number that is either a round number or a decimal with a small “0” in the middle. Most charting packages, indicators, calculators and other computer software will display this as a 0, leaving you to pick an arbitrary number. Now when you do calculate the comp accumulate, it comes out looking like a round number, giving you a measly 5.
You can find more accurate results by looking at a higher level of digits after the decimal point, for instance 1.Percentage points are a way to compare the value of a currency between different banks or different countries. If you looked at it in the United States Dollars per The Euro you would see how much 1 Euro is worth in U.S. Dollars but if you split it over the last couple of years you might find the Euro’s value has increased. The same can be said for any ratio of two countries currencies.
While there are many factors that can impact the price of a currency it is the basic design of a currency that changes. Factors like the amount of the flow of money in a country, competition between countries for the same amount of money, as well as quite likely a natural disaster can cause major fluctuations in currency value.
If you plan to trade on the Forex market it is important to have the right tools. When it comes to technical analysis you need to be able to spot trends. By taking into account the kingdom of mathematical relations between different series this can help you see when a trend will end or if it is going to continue. It is the ability to take into account a whole new series of factors that allows you to make a prediction of how far a particular currency will go.
By either analyzing the current trends of the currency value, the history of the currency value or both together you can make an informed decision to invest your money on the Forex market and not get hit with a currency that is fluctuating wildly.
After all the best currency bets are to come from a place that is stable and where dollar gains will matter.