Take A Good Look
Originally developed in Japan for breaking down candlestick contracts candlestick charts are really useful for analyzing FOREX prices. Candlestick charts are very similar to bar charts they both show the high, the low, open and close price for the suggested time. However, the color-coding makes it much easier to read a candlestick chart, commonly a green candlestick indicates a rising price and a red one indicates a falling price.
The actual candlestick shape in reference to the candlesticks around it will tell you much about the price movement and will greatly aid your analysis. Depending upon the price spread various patterns will be formed by the candlesticks. A lot of the shapes have some rather exotic names, but once you learn the patterns they're simple to pick out and analyze.
Price charts are not commonly used by themselves to get the full affect you need to supplement them with some technical indicators. Technical indicators are commonly grouped into some pretty broad classes. A few of the more common ones used to monitor and track the market movement are: trend indicators, strength indicators, volatility indicators, and cycle indicators.
Here is a list of a few of the more commonly utilized indicators as well as a brief description.
Average Directional Movement Index (ADX) – This index will help indicate if the market is moving in a trend in either direction and how strong the trend is. If a trend has readings in excess of twenty-five then this is considered a stronger trend.
Moving Average Convergence/Divergence (MACD) – This shows the relationship between the moving averages which allows you to determine the momentum of the market. Any time that the signal line is crossed by the MACD it's considered to be a strong market.
Stochastic Oscillator – This compares the closing price to the price range over a specific time frame to determine the strength or weakness of the market. If a currency has a stochastic of greater than eighty it is considered overbought. However if the stochastic is under twenty then the currency is considered undersold.
Relative Strength Indicator (RSI) – This is a scale from 1 to 100 to compare the high and low prices over time. If the RSI rises above seventy it is considered overbought where as anything below thirty is considered oversold.
Moving Average – This is produced by comparing the average price for a period of time to the average price of other periods of time.
