Traders use price charts to track and identify real-time pricing trends.
PRICE CHART STYLES
Price charts represent price action of a trading asset for analysis and decision making and come in many different forms.
A line showing the ask price, bid price or average.
Candlesticks show the open, close, maximum, and minimum values for each period.
The HLC bar shows highs and lows for each period using a vertical bar, with a horizontal tick to the right showing the closing price.
This chart plots the minimum and maximum prices. The upper boundary represents the maximum ask price, while the lower boundary represents the minimum bid price.
The OHLC is similar to the HLC bar. In addition to showing highs and lows for each period and a tick for the closing price, it also provides a horizontal tick to the left, showing the opening mid-price for the period.
Meaning "average bar" in Japanese, this is a modified candlestick chart where the open-high-low-close (OHLC) values take the previous period into account to better isolate trends.
INTERPRETING CANDLESTICK FORMATIONS
Candlesticks can pack more information into a single view than any other form of price chart. For this reason, they remain a perennial favourite with many traders. Candlesticks are similar to bar charts and provide opening and closing values, current direction trends, and the high and low price for each reporting period.
The body length of the candlestick shows the relative change in the open and close rates for the reporting period – the longer the body, the more volatile the swing between the open and close rates. Also, the colour of the candlestick body provides key information about the directional trend.
A hollow candlestick means that the bottom of the body represents the opening rate, while the top shows the closing price, indicating a rising trend.
A filled candlestick, on the other hand, shows the opening rate at the top of the body and the closing rate at the bottom, and points to a decreasing trend.
A doji occurs when the opening and closing prices are basically the same price, resulting in a very small body. Note that the length of the upper and lower shadows (which reflect the intra-period prices) has no effect on the closing price. The interpretation of the basic doji is that there is no clear direction for the market. This should make you wary until a stronger indication presents itself.
GRAVESTONE AND DRAGONFLY
A gravestone doji appears when open and close prices occur at the low of the reporting period, indicating that top of the market (the resistance level) has been reached. When buyers do not advance the price further, prices may start to reverse. A dragonfly doji is created when open and close prices occur at the top of the reporting period suggesting the market has reached the support price and a reversal is likely.
HAMMER AND HANGING MAN
Both these patterns have long lower shadows, but very small bodies and a very small or no upper shadow. They both suggest price uncertainty — look for confirmation that a price reversal is imminent before acting. A hammer occurs If the pattern appears at the bottom of a downtrend (hollow body). When it appears at the top of an uptrend (filled body), it is known as a hanging man.
Spinning tops consist of candlesticks with a small body that can be either hollow or filled. The small bodies indicate that for the reporting period there has been very little difference between the opening and closing prices. Thus, spinning tops are seen as a sign of indecision pointing to the increased likelihood of a market reversal.
A shooting star is a strong signal that a price run-up is about to come to a crashing halt. This is the pattern you should be on the look-out for after a prolonged price increase, and is capped by a candlestick with a small solid body. This "shooting star" clearly shows the market is pausing to reflect on the current price run-up.
The morning star indicates that the price has reached a support level after a declining market. It appears as a small hollow-bodied candlestick that follows a declining, filled candlestick marking a turning point in the price. A third candlestick showing a dramatic price increase confirms it.
Trend analysis can be one of the most important tools in a trader's tool kit. Without a clear understanding of price action trend analysis, other technical indicators can be difficult to apply.
Price rarely moves in a straight line, instead prices move in waves or cycles known as trends.
Financial markets move due to supply (sellers) and demand (buyers).
An overwhelming supply will usually result in a drop in price. Conversely, an increased demand will usually result in an increased price.
Directional trend lines, also known as uptrends and downtrends, are used by some traders to highlight an overall market direction for a currency pair. In the example above, you can see that the price has fluctuated somewhat, but overall the price is up over the past twenty-four hours.
Granularity refers to the length of time for each reporting period in the chart.
In this Min/Max example, granularity is set to 1 minute. This means that at each data point, or tick, the price chart displays the pricing information for the previous period of 1 munite.
It is important to select the granularity that best matches your overall trading style. Generally, the shorter the length of time you tend to hold open positions, the shorter you should set the time intervals for your price chart.
SUPPORT AND RESISTANCE LINES
A support trend line connects the lowest price points for a currency pair and shows the recent levels to which the rate dropped before bottoming out and rebounding. This is the point at which the market supports the price.
A resistance trend line connects the highest prices a currency pair reached before falling back to lower levels. This is the point at which the market resists moving the price higher.
A trend is present on a minimum of two timeframes
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Fundamental traders watch interest rates, employment reports, and other economic indicators trying to forecast market trends.
Technical analysts track historical prices, and traded volumes in an attempt to identify market trends. They rely on graphs and charts to plot this information and identify repeating patterns as a means to signal future buy and sell opportunities.
Leveraged trading involves high risk since losses can exceed the original investment. A capital management plan is vital to the success and survival of traders with all levels of experience.
Learn risk management concepts to preserve your capital and minimize your risk exposure. Seek to understand how leveraged trading can generate larger profits or larger losses and how multiple open trades can increase your risk of an automatic margin closeout.
Execution speed numbers are based on the median round trip latency measurements from receipt to response for all Market Order and Trade Close requests executed between August 1st and November 30th 2017 on the OANDA V20 execution platform, excepting MT4 initiated orders.
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This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.
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