Can someone be a profitable forex trader without having a detailed understanding of how to use a currency trading chart. Unless they use a forex robot the answer is no unfortunately.
Technical analysis is a chief part of a successful traders ability to accurately predict fx movements as well as recognizing momentum and trends within the market. Technical analysis is performed using a currency pricing chart as the cornerstone from which every thing is calculated. In order for a trader to maximize the chance of a profitable trade, analysis needs to be performed on the currency pair being traded to try and get a level of confidence about the correct entry and exit points into and out of the market. This analysis can be both technical and fundamental in nature and it is importan for a trader to be skilled in both.
So technical analysis is interested with the technical attributes of the curreny such as support, price history, resistance, supply and momentum but to name a few.
Due to great volumes of data involved in comprehensive technical analysis the most fitting way to show this information is using a trading price chart. Technical analysts believe firmly that by using a currency trading chart they can identify patterns of market behavior that have occurred in the past and in doing so can predict what will happen in the future.
Trading charts can be used to view trading data over many different timeframes depending on the style of trading the client is using. The advantage of this is that contrary styles of traders who have different goals can still utilize charts to help them. A scalper would set the chart to show a small time frame which is updated perpetually whereas a longer term trend trader would employ a chart to look at the currency movement over days and weeks not seconds and minutes. So charts can benefit traders whatever their selected strategy may be, both short and longer term.
Configuring the chart with the accurate timeframe and time segments is only the start of the technical analysis procedure. From
here numerous variables can be overlaid onto the chart to provide a fuller insight. The technical trader is seeking to obtain data regarding the currencys' movement and what influences are causing the movement. Technical indicators are needed for this purpose and they mainly fall into:-
1) Volume Indicators
2) Momentum Indicators
3) Moving Average Indicators
1) The volume that is traded during a period can indicate the strength of backing for a price move and if it will actually hold. Volume can be used to confirm a price trend. Volume is ordinarily calculated in terms of the 'On Balance Volume' or OBV
2) Momentum measures the strength of a particular trend and the common momentum indicators that are used are the 'Relative Strength Index' (RSI), Moving Average Convergence / Divergence (MACD) and Stochastics. Here the analyst must look at the overbought and oversold regions of the chart and concentrate on the divergence concept.
3) A moving average indicator is useful when it is placed on the chart as it illustrates trends due to the smoothing effect of the averages being used.
Technical analysis is a very detailed and complex part of trading and the above short description has barely scratched the surface. A complicated area for any trader to learn and perform well.
The other aspect to trading analysis is fundamental analysis. Rather than focus on past events as in technical analysis, fundamental analysis concentrates on events and actions now and in the future that will affect or possibly alter currency prices.
Fundamental analysts coordinate key financial and economic decisions and announcments into a worldwide calender so that they are standing by for the effects these may have on the foreign exchange market. Such decisions and announcements would cover interest rate decisions, GDP figures, unemployment figures and national budgets etc. All of these decisions can have an impact on the value of a particular currency but also unfortunate events can also be very influential such as natural disasters and acts of terrorism.
There is little doubt that pricing charts are vitally important in order for a trader or analyst to perform technical research, however it would be wise not to overlook the fundamental influences on the market. You will find advocates of both technical and fundamental analysis, some favouring one more than the other but it is clear that to be successful a trader needs to be mindful of all factors influencing the trade. Lately however with the advances of forex robots it is possible to avoid the traditional methods of intense study and constant fact accumulation. Rely solely on price charts at your peril, you have been told.
