Forex Basic

Trading Chart Analysis – What It Is and How to Use It

If you want to be a trader, you have to prepare yourself for some learning. You have to do some learning no matter which field you are stepping in. The best thing is that anyone from any profession can be a part of trading and trade in financial markets. You don’t need any degrees. The courses that you need to learn trading are available online easily. The best thing is that these courses and other training material are available from the broker you join online. One of the most important things to learn as a trader is the trading chart analysis.

Let’s learn about trading charts analysis and what this whole thing is all about.

What Is Trading Chart Analysis?

When you are a trader, you can decide whether you want to enter trades based on the ongoing events or the price movement of the asset you want to trade. Of course, there is no restriction on combining the knowledge from both the worlds. You can analyze the charts and come up with conclusions from the ongoing events as well. However, when the most of your trades are based on the analysis of the trade charts, you are called a technical trader. But what are these charts? These are graphical representations of how the price of the assets are moving in the markets. Each asset has its own trade chart for you to analyze.

Trading Chart Analysis – Detailed Understanding

So, humans have found a way to represent just about anything visually. They do this because visual information is easiest for human brains to capture. For example, you can create a graphical representation of days of the month and temperature. You can take the days of the month on the X-axis and the temperature on each day on Y-axis. At the end of the month, you will have a visual of how the temperature moved throughout the month. The best thing about visual information is that you don’t have to read the temperature on each day separately. That can be time-consuming and difficult for your brain to memorize.

In a similar way, you can create a chart from the price movement of an asset in the market over the course of time. Once again, you will put the time measure on the X-axis and price of the asset on the Y-axis. At a glance, you are able to see how much the price has moved over the course of time. When looking at trade charts, you can choose the timeframe during which you want to see the price movement. You can choose the timeframe to be hours, days, quarters, years, etc. How much timeframe you want to select depends on what type of analysis you want to do.

The Different Types of Trading Charts and How to Analyze Them

There are many different types of trade charts that can be used to notice the patterns in the price movements of an asset. It is totally up to you which type of chart you want to use. Usually, you will see three or four elements of the price of the asset on the chart. There is no rocket science involved in analyzing the trading charts. Just about anyone can understand and read these charts with some basic knowledge. Here are the three common charts used by traders all around the world.

The High-Low-Open-Close Charts

You see thin bars on this chart with small protrusions on the right and left side. The small stick to the right tells you the closing price of the asset whereas the one on the left tells you the opening price. The highest point of the bar is the highest the price went during the chosen timeframe. The lowest point is the lowest the price went during the chosen timeframe. The bars are colored red and green with green telling you upward price movement and red telling you the opposite. The information on this chart is pretty similar to what you have on the candlestick chart coming next.

Candlestick Charts

When you look at this chart, you will notice small and large candlesticks. The four different pieces of information you find on this chart include opening price, closing price, highest price, and the lowest price. There are green and red candlesticks on these charts. Green candlesticks mean the price has been moving upward whereas the red ones show the downward movement of the price. Each candlestick is drawn based on the timeframe you choose. If you choose 30 minutes as the timeframe, each candlestick tells you how much the price of the asset moved in thirty minutes. The sizes, colors, and the length of the wicks of the candles can tell you about different trends in the market.

Line Charts

There are a few things missing on this particular chart. You can call it the most basic type of chart providing you the opportunity of doing the most basic type trading chart analysis. It is a line that continues to move towards the right side while going up and down based on the price movement over the course of time. This type of chart is perfect to notice the trends in the price movements over a long period. You don’t get to see the highest or lowest price on a particular day. You don’t even get to know the opening price of the asset because you are looking at the data for a long timeframe. A chart similar to this but with shaded bottom is called the mountain chart.

Bottom Line

As a trader, it makes more sense for you to use whatever resources are available before you enter a trade. In addition to analyzing these charts, you should also look at the events in the real world. Furthermore, you can take advantage of trading signals as well. Trading signals are generated by trading experts to help you decide whether to go long or short in a trade. Whether you rely on charts or the trading signals, you have to keep in mind that they are only to help you with your decisions. They never guarantee you any results. The outcome of the trade can be the exact opposite of what your chart analysis or trading signal predicted. Keep your emotions out of trading and learn to control your risks as the major part of your trading strategy.

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