A chart aggregates every buy and sell transaction of that financial instrument in our case, currency pairs at any given moment. When the future arrives and the reality is different from these expectations, prices shift again. And the cycle repeats. Whether the transaction occurred by the actions of an exporter, a currency intervention from a central bank , trades made by an AI from a hedge fund, or discretionary trades from retail traders, a chart blends ALL this information together in a visual format technical traders can study and analyze.
A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time. All you know is that price closed at X at the end of the period. You have no clue what else happened. But it does help the trader see trends more easily and visually compare the closing price from one period to the next.
The line chart also shows trends the best, which is simply the slope of the line. Some traders consider the closing level to be more important than the open, high, or low. By paying attention to only the close, price fluctuations within a trading session are ignored. A bar chart is a little more complex.
It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid. As the price fluctuations become increasingly volatile, the bars become larger. As the price fluctuations become quieter, the bars become smaller. The fluctuation in bar size is because of the way each bar is constructed. The vertical height of the bar reflects the range between the high and the low price of the bar period.
The horizontal hash on the left side of the bar is the opening price, and the horizontal hash on the right side is the closing price. A bar is simply one segment of time, whether it is one day, one week, or one hour. Open : The little horizontal line on the left is the opening price. Low : The bottom of the vertical line defines the lowest price of the time period. Candlestick charts show the same price information as a bar chart but in a prettier, graphic format. This will be covered in more detail later in the article. When it comes to candlestick charts, there are many different patterns which are used by traders in their technical analysis.
Before we go through examples of patterns formed by candlesticks, let'e take a look at the two different types of candlestick.
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If you are viewing the daily timeframe in your price chart, then the above candles would each represent a full day's worth of trading and provides us with a lot of useful information, such as:. This information can then be used, along with other technical analysis tools, to start building a picture of the market condition and the possible scenarios of what could happen next.
For example:. There are a variety of different candle formations that are used in candlestick trading. One such pattern is called the Shooting Star:.
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The Shooting Star pattern is a bearish signal which suggests a higher probability of the market moving lower than higher. In this pattern, the buyers push the market to a new high but fail to hold price there. Some buyers exit their long position, causing the market to fall lower, leading sellers to step into the market.
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Traditionally, the open and close of the candle body should be in the lower half of the candle. In the majority of cases above, the market did indeed go lower but in some cases, it went higher instead.
A technical analyst would also draw upon other tools to build a complete picture on the market condition and identify possible areas to enter and exit. Admiral Markets offers an enhanced version of MetaTrader that boosts trading capabilities? Now you can trade on MetaTrader 4 and MetaTrader 5 with an advanced version which offers excellent additional features such as the advanced technical analysis like the correlation matrix, which enables you to view and contrast various currency pairs in real-time, or the mini trader widget - which allows you to buy or sell via a small window while you continue with everything else you need to do.
Download it for FREE today by clicking the banner below! Technical analysis indicators are programmed with different formulas using the open, high, low and close price values of a specific time period. While most indicators are particularly popular in Forex technical analysis, volume indicators are more suited to markets which trade on an exchange due to the trading volume being the primary source of data for those indicators. Studies of the total traded volume are helpful to financial traders in the stock market, the futures market and the commodity market as the buy and sell prices from these markets go through one central exchange like the London Stock Exchange or Chicago Mercantile Exchange.
The Forex spot market is traded OTC Over-The-Counter so the total volume will be different from broker to broker depending on which banks and hedge funds they get their pricing feed from. This means that, for the Forex market, the technical indicators which use volume are only using a portion of the total volume. How much of the data is representative is up for debate. With such a wide variety of technical analysis indicators available, which ones to use may seem daunting at first. But don't worry! We will be exploring the most commonly used indicators for different markets later on in the article.
Immersing yourself in the trading world can help to accelerate your trading training and implementation of technical analysis in real-time situations. Seeing how professional traders view the markets can give you the confidence to go away, analyse and trade the market yourself using chart patterns and indicators. Admiral Markets offers three trading webinars a week that you can register to watch completely FREE in the Trading Spotlight webinar series. Trading Spotlight features three professional traders on Mondays, Wednesdays and Fridays, taking a deep dive into the world's most popular trading topics and strategies, including Forex technical analysis.
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To gain your FREE access to these trading webinars, simply register by clicking on the banner below:. Now that you know more about chart patterns, candle patterns and indicators, let's take a look at applying technical analysis on a range of different markets, all of which are available to trade on with Admiral Markets.
The high liquidity of the Forex market attracts all types of traders, from scalpers to swing traders. Forex technical analysis is widely used by many of these different participants in the market. Let's have a look at one of the types of momentum indicators mentioned earlier and how it can be used in Forex technical analysis. The Stochastic Oscillator is a very popular and widely used momentum indicator. It can be used to identify potential turning points in the market. So how is the Stochastic Oscillator used in Forex technical analysis? While there are many ways it can be utilised, the most common use is to identify overbought and oversold markets.
From this point, some traders may choose to wait for the lines to cross down below the 80 level and place an order to sell in anticipation the market will fall. To place an order to sell, traders can either:. Once the trading ticket opens, traders can then input their trade details such as the type of order, volume, entry price, stop-loss and so on. Typically, traders will use the previous bar high and low values for entry price levels and stop-loss levels. Once the trader is happy with their trade values, clicking the 'place' button will create a live order.
The trading levels will now show as horizontal lines on the chart:. Cryptocurrencies such as Bitcoin and Ethereum are newer markets that are now widely available to trade on. In fact, with Admiral Markets you can trade on cryptocurrencies against the Euro 24 hours a day, seven days a week! While it is a newer market, cryptocurrency technical analysis still works well in the right market conditions. This is because chart patterns are still created from the buying and selling activity of traders in the market. With cryptocurrency technical analysis, traders can use chart patterns, candlestick patterns or indicators.
This is because it is a volatility indicator and the cryptocurrency market is highly volatile. To place the ATR indicator on your MetaTrader technical analysis software chart, follow these steps:. Date Range: 18 January - 3 September Cryptocurrency traders using technical analysis would use this to identify periods of high volatility and periods of low volatility to help with placing stop-loss levels and take-profit levels. In times of high volatility, when the ATR is higher than usual or increasing, it means the daily bars are getting larger. Some traders may decide to go to the lower timeframes to capitalise on this volatility.
Conversely, in times of low volatility, when the ATR is lower than usual or falling, it means the daily bars are getting smaller. This in turn means traders may have to sit in trades for longer before they reach their target levels. Traditionally, stock market traders and investors have used fundamental analysis on whether to buy shares in a company. However, as the market now has a higher frequency of algorithmic traders using technical indicators and chart patterns, there are many more stock market traders using technical analysis than ever before.
For example, many stock market traders like to see and trade on longer-term trends, often staying in moves for weeks or months. The most commonly used tools are trend lines and horizontal lines which are forms of technical support and resistance. To access the free drawing tools in your MetaTrader platform simply click Insert from the top tabs in the platforms and then select Objects, Lines.
To draw a trendline on, traders can simply click the trendline option. The aim of a trendline in technical analysis is to connect the higher low cycles in an uptrend and the lower high cycles in a downtrend. Once the beginning points of these cycles have been determined, traders can left-click and hold down at the beginning of the first cycle and then, while holding down, drag the trendline to the next higher low cycle.
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This will then draw on a line to produce a trendline where multiple bounces could occur. Date Range: 1 February - 3 September It only takes points one and two to create the trend line and then traders may look for bounces off the next time it trades at the trend line as points three and four show. Of course, at some point the price will break through the trend line, which is why successful traders also exercise sound risk management principles. Many traders use technical analysis when trading commodities, most commonly with key commodities such as gold and crude oil.
Two common candle patterns are the bullish and bearish engulfing candles.