forex lesson #5

LESSON #5:~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Charting Your Way to Success: FOREX PriceCharts, What They Mean and How to Use Them~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~"What's the difference between the speculative winner andthe ignorant loser in FOREX?" my silver-tongue friend asked.When I thought about it, numerous things came to mind - suchas discipline, trading rules, not being greedy etc., butwhat came out of my mouth was really no big surprise:"Understanding the charts... they represent so, so much. Yougotta know they represent the lifeblood of the market. Knowthem well and you'll be head-and-shoulders above the rest."We at RapidForex.com will be the first to admit that readingcharts, and interpreting patterns, are more an art form thana skill; however, knowing you'll have to be personally in-tune and subjectively-creative with the charts (basing yourentry and exit decisions on YOUR OWN combined methods oftechnical analysis) doesn't mean you should run-for-the-hills.Nope, don't be scared...The beauty of FOREX charts, as opposed to charts used for,say, daytrading stocks, is that they are pretty easy tointerpret and use. They're a reflection of a slower-moving,stable economy (the one of a country) compared to the futureand daily drama of company reports, Wall street analysts andshareholder demands.And, don't forget...unlike stocks, currency charts rarelyspend much time in tight trading ranges and have thetendency to develop strong trends (even though the FX marketmay be volatile, it's more predictable). And, rather thantens of thousands of stocks to analyze, you only have a fewmajor currencies to trade.===================The complimentary charting software provided by any one ofour recommended brokers will be absolutely sufficient foryou to put your finger (eye) on the pulse of the market forany one currency pair.Understanding just a few basic points, below, of thetechnical analysis of currency chart reading can lead toincreased profit potential that far exceed the hazards ofother markets.===============Pricing - Price reflects the perceptions and action taken bythe market participants. It is the urgency between buyersand sellers in the Over-The-Counter (OTC) or 'interbank'market that creates price movement. Thus, all fundamentalfactors are quickly discounted in price. Therefore, bystudying the price charts, you are indirectly seeing thefundamental and market psychology all at once - after allthe market is fed by two emotions - Greed and Fear - andonce you understand that, then you begin to understand thepsychology of the market and how it relates to the chartpatterns.Data Window - When you click on a price bar or candlestick,most FX online charting stations will display a small box ofdata usually called a display window which will contain thefollowing items:H = Highest_Price L = Lowest_Price O = Opening_Price C = Close_Price (or Last_Price)The most common types of price bars, used in FOREX trading,are the Bar Chart and the Candlestick chart:Bar Charts - Price bars are a linear representation (a line)of a period of time. This enables the viewer to see a graphicrepresentation summarizing the activity of a specific timeframe. As an example, we use one minute and five-minute timeintervals for our system. Each bar has similarcharacteristics and tells the viewer several importantpieces of information. First, the highest point of the barrepresents the highest price that was achieved during thattime period. The lowest point of the bar represents thelowest price during the same period. Regular bars display asmall dot on the left side of the bar which represents theopening price of the period and the small dot on the rightside represents the closing price of the period.Candlesticks - Japanese Candlesticks, or simply Candlesticksas they are now known, are used to represent the sameinformation as Price bars. The only difference is that thedifference between the open and close form the body of a boxwhich is displayed with a color inside. A red color meansthat the close was lower than the open, and the blue colorrepresents that the close was higher than the open. If thebox has a line going up from the box it represents the highand is called the wick. If the box has a line going downfrom the box, it represents the low and is called the tail.Many interpretations can be made from these "candlesticks"and many books have been written on the art of interpretingthese bars (you'll find a few links in our ResourcesSection).So, the main thing to keep in mind between the two types ofprice charts is this:Candlestick charts are similar to bar charts in that the toptip of a vertical line represents the high and bottom tiprepresents the low. However, market activity between theOPEN and the CLOSE is represented differently by the use ofcandlestick bodies.Because of their colored bodies, candles provide greatervisual detail in their chart patterns than bar charts. Whichis why we recommend you become intimately familiar withCandlestick charts or, as we like to call them, "bar chartson steroids."===============================Chart Intervals & Time Frames:===============================A chart Time Scale & Period, or timeframe, basically refersto the duration of time that passes between the OPEN and theCLOSE of a bar or candlestick.While most of our trading methods, outlined in our coursepackages, will have you viewing the 5-min and 1-min candlecharts, it is often useful to look at larger time frames(like the 1-hour or Daily charting methods used in Forex Sailing).For instance, with your broker software, you will be able toview a currency pair, in a 1-hour timeframe over a 2-dayperiod, 5-day period, 10-day period, 20-day period and 30-day period.Most of the short-term time intervals (5-min and 1-min charts)are used for entry and exit points (we teach this extensivelyin our course titled "Forex Surfing" & "Forex Scalping") and thelonger-term time intervals (1-hour and daily charts) are used togauge where the CORRECT trend is (see our course Forex Sailing for longer term trend trades).