Forex Chart Reading: an Introduction
Even if you are not a technical analyst it is important to learn how to read forex charts. The fact of the matter is that it is virtuallyimpossible to get a proper assessment of the value of the forex market with out knowledge of chart patterns.
There are numerous chart types used in forex market analysis, but in a lot of them the following patterns often emerge. As a trader, it is to your advantage to learn their meaning and relation to price movement and market direction.
Trendlines, as the name suggests, are forex chart patterns used by traders to analyze forex prices and market direction. Trendline charts consist of an inclining line, representing a price uptrend, and a declining line. If the declining streak goes through the price bars it is a sign that the price is on a downward path.
Trendline charts also have support (floor) and resistance (ceiling) levels, which are seen as parapets for prices. Most forex charts of this type also use channels: inclining parallel beams, declining and sideway beams, representing all possible price movement in the forex. These channels are used by technicians to determine when to buy or sell.
Another frequent chart pattern are triangles. The names of these patterns, are, of course, derived from the movement of the price bars, and in this case they resemble the aforementioned geometrical shape. Often the price bars form a shape like a symmetrical triangle, and when the pattern breaks at the top, it is an indicator to go long, and at down, it is time to sell.
Ascending Triangles, or Right Triangles, also come up frequently. Because the propensity of Right Triangles are breaks in the upper part, this forex chart pattern is used as a buy indicator. Descending Triangles, of course, are indicative of a downtrend.
Non symmetrical Triangles are also technical indicators of price uptrends or downtrends. Depending on the slope, chartists may go long or short. Pennants, on the other hand, resemble triangular forex chart patterns, except that they are broader. The split on the upper region is, as with the other charts, representative of a buy signal.
Trendlines, triangles and pennants are just a few of the numerous forex chart patterns that a forex trader will encounter in technical and fundamental analysis. By learning how to interpret the above-mentioned chart patterns, you will gain a better understanding of how and why chart patterns are very important.
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