The Importance of Studying a Forex Chart

Trading in foreign exchange (forex) markets involves having the necessary knowledge to understand movements in various currency markets worldwide. Forex trade, which is basically the buying and selling of currencies, like the forex market, is very technical. This is the reason for the necessity of studying forex charts.

A forex chart is the primary tool used by forex traders to help them see patterns and abnormalities in the currency markets. These patterns or trends are used to forecast possible future movements in the market. Forex traders use forex charts as technical tools if they want to gain success in the market.

Some of the forex charts that are commonly used are:

1. Candlestick chart – shows the opening, closing, highs, and lows of forex prices or currency rates, and represent them as a kind of candlestick with a wick at each end.
2. Bar chart – shows currency movement and therefore currency price
3. Point and Figure chart – essentially like the bar chart but Xs and Os are used to show changes in price direction
4. Line chart – shows the exchange rate of a given pair of contracts in a given period of time.

Traders can study a forex chart in the Internet as well as business news in print or on television. Forex charts are easily understandable and are similar to charts used for trading in the stock market. If used properly in technical analysis, you will find that using the charts is a time-efficient way to earn profits in the forex market.

Forex traders should understand that currency rates and prices are always determined by fundamentals (political and economic conditions which affect exchange rates) and human psychology (ie emotions, how environmental events affect these).

Fundamental analysis of significant events in a country, including employment rates and economic policies of a governing party, so a general election in a country is often seen having some rate on that country's currency. Forex traders always look at the news to know things like a currency's interest rates, a country's GDP and amount of foreign investment. These things affect the present and future behavior of a currency.

Forex charts, on the other hand, are the tools used in technical analysis or studying patterns and trends in the market. Regardless of any happening in a country, there are patterns in how foreign currencies behave and studies say that these patterns have held true for a long time. These patterns actually reflect human behavior and are there before used to predict the future. Good technical analysts can usually learn a lot from the patterns themselves and the reasons for them. Traders who lean toward technical analysis may not know (or want to know) the ruling party in a country, but they find out how its currency performances over a period of time.

Studying a forex chart is an important part of trading. Along with fundamental analysis, studying forex charts can help building a stronger position to profit from the forex market.

Source by Paul D Johnson

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