INTRODUCTION_ECONOMICS_TRADING FOREX_CHARTING_RISK MANAGEMENT _GLOSSARY


CHARTING

Charts are one of the most fundamental aspects of technical analysis. The three most known types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels are candlestick chart, bar chart and line chart, and all three are available  with a Xstation platform. It is important that you clearly understand what is being shown on a chart and the information that it provides.



Line Chart: The most basic of the charts is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.



Bar Charts: The bar chart expands on the line chart by adding several more key pieces of information to each data point. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is lower than the right dash (close) then the bars do not connect and a gap appears, representing an up period for the pair, which means it has gained value. The same rule applies to the opposite.



Candlestick Charts: The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. There are two color constructs for days up and one for days that the price falls. When the price of the asset is up and closes above the previous candle (in the example on the side) it is coloured blue. If the asset has traded down for the period, then the candlestick appears white.



Heikin-ashi Charts: The Heikin-Ashi technique - "average bar" in Japanese - is one of many techniques used in conjunction with candlestick charts to improve the isolation of trends and to predict future prices. The Heikin-Ashi chart is constructed like a regular candlestick chart. The time series is defined by the user-depending on the type of chart desired (daily, hourly, etc.). The down periods are represented by empty white bars, while the up days are represented by blue filled bars. Finally, all of the same candlestick patterns apply. The Heikin-Ashi technique is extremely useful for making candlestick charts more readable--trends can be located more easily, and buying opportunities can be spotted at a glance. The charts are constructed in the same manner as a normal candlestick chart, with the exception of the modified bar formulas.
After explaining the different types of charts we will show the way we have to read those in order to identify the trading patterns by performing technical analysis and implementing our risk management that will enable us to trade in a better manner. We will be using candlestick charts.

The default chart type is called a ‘candlestick' chart. This chart type is used frequently in the forex market. A bar on a candlestick chart shows the open, close, high and low prices for the selected period. The body of the candle shows the open and close prices where the wicks show the high and low prices. If the closing price is higher than the opening price of the previous candle, then the candlestick will be blue. If instead the closing price is lower than the opening price of the previous candle, then the candlestick will be red. Candlesticks simply make it easier to see if the trading period ended up or down.

A candlestick describes the open, high, low and close price of the trading period in a single candle. If you’re looking at a 15 minute chart, then each candle represents a 15 minute timeframe. An hourly candle represents price movement in one hour.

A long body has a very long body when compared with other recent candles. A short body candle usually implies consolidation, as the forex market traded in a narrow range during the trading period. The body of the candle indicates where price “opened” for that timeframe and where price “closed”. The “wicks” at the top and bottom of the candles, indicate the “high” and “low” price for that period.

Note: Candles can be any color you choose but we will be using green candles to indicate upward price movement (bullish) and red candles to indicate downward price movement (bearish).

Green bodies show increased buying pressure and red bodies show increased selling pressure.All candlesticks and patterns indicate where price should move in the future. This is not an exact science, however these patterns play out more often than not and that’s why they are very powerful tools to use with your trading. The key is to recognize these patterns and know when to trade them and when “not” to trade them.

Drawing a Trendline

Prices trend in one of three ways: up (bull market), down (bear market) or sideways (range bound market). A trend line is used to help a trader visually recognize which trend direction is in place. Until the trend is "broken," a trader can reasonably expect the trend to continue. Trend lines are drawn with the ‘pencil' tool. Typically, when you draw a trend line, you want to connect two or more extreme high or low prices that define the trend. Here are a few examples.


Using indicators to place a trade

Just looking at forex charts can be helpful in making a trading decision, but many traders also use technical indicators to help them make more informed trading decisions. These tools help a trader locate price trends and predict future price movements. The trading station is equipped with over thirty popular pre-loaded indicators. Over six hundred popular and custom indicators are downloadable online. To add an indicator to a chart, right click on the chart and select ‘add indicator.

It is very easy to add an indicator from the xstation trading tools panel as you can see in the picture below. You just press inside the box and search for any indicator you would like to add.



In the Intermediate level of our trading Academy we will show how to use the indicators provided with xStation to analyse the market and trade.

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Risk Warning: Forex (FX) and Contracts for Difference (’CFDs’) are complex financial products that are traded on margin. Trading FX and CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, FX and CFDs may not be suitable for all investors because you may lose all your invested capital. You should not risk more than you are prepared to lose. Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Past performance of FX and CFDs is not a reliable indicator of future results. Most FX and CFDs have no set maturity date. Hence, a CFD position matures on the date you choose to close an existing open position. Seek independent advice.