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Currency pairA currency pair depicts a quotation of two different currencies. The first currency in the pair is the base currency. The second currency in the pair is labelled quote currency or counter currency. Such a quotation depicts how many units of the counter currency are needed to buy one unit of the base currency.
For example the quotation EUR/USD 1.2500 means that one euro is exchanged for 1.25 US dollar. If the quote moves from EUR/USD 1.2500 to EUR/USD 1.2510, the euro is getting stronger and the dollar weaker. On the other hand if the EUR/USD quote moves from 1.2500 to 1.2490 the euro is getting weaker while the dollar is getting stronger.
Majors are the most liquid and widely traded currency pairs in the world. Trades involving majors make up about 90% of total Forex trading.
The Majors are: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD.
GBP/USD is the only currency pair with its own name. It is known as "Cable", which has its origins from the days when a cable under the Atlantic synchronized the GBP/USD rate between the London and New York markets. But also there is lots of abbreviation's for other the currency pairs such as,
AUD/USD ... "Aussie"
EUR/USD ... "Euro"
GBP/JPY ... "Geppy"
GBP/USD ... "Cable"
NZD/USD ... "Kiwi"
USD/CAD ... "Loonie"
USD/CHF ... "Swissy"
USD/JPY ... "Gopher"
Technical analysisLine ChartAll charts are plotted with time on the x-axis and the currency pair on the y-axis. Each time period on our real time charts can range from a tick by tick to a weekly interval (the tick refers to each individual pip movement). This gives traders the flexibility to view currencies with closer examination while also allowing them to spot the trends most suitable for their time-sensitive trading strategy.
A line chart's strength comes from its simple design; it provides an uncluttered, easy to understand view of a currency's price. Line charts display the currency's closing price.
A line chart is simply a graph of the value of a currency taken at regular time intervals based on current prices.
Graphical methods Forex trend lines
Channel and Trading range
Support and resistance levels
Candlestick terms
Candlestick patterns
Figures
Online Forex Trading Bar ChartsForex trading bar charts are the most popular method for Forex trading technical analysis worldwide. They have reached their popularity because they are useful and easy to understand. The activities of the hour/day/week/month is seen as a vertical bar in the chart. Horizontal marks account for Opening and closing prices. Every time you trade in online Forex, it is recommended that you use these bar chart patterns and indicators to help you invest properly.
Recognizing Trend Lines A trend line is drawn in the bar chart to indicate the price of online Forex trends. An ascending trend line connects between the daily highs of the market. A descending trend line connects the day's low prices. If the downward trend line crosses the most recent prices - a buy signal is generated. If an ascending trend line crosses through the most recent prices, a sell option s generated.
Support and ResistanceIf you look at an online Forex trading bar chart that details the change in the currency over time, you will notice that after the graph goes up and down for a few times, there is a horizontal line you can draw at the lowest place the graph arrives to, and also at the highest place the graph goes. This means that after the graph has dropped several times, it never drops more than a specific place - called the support level, and after the graph rises a few times, it stops also at regular places, called resistance levels.
An example of a support level is if the graph goes down to $4, then rises to $6, then goes down again to $4, and rises to $5, goes on to $4, etc. This means the support level for that graph is $4.
support levels are the places on the bar chart where online Forex traders feel the stock will move higher, and buy the currency more than sell it. Resistance levels are when there are more sellers than buyers.
When support levels are penetrated, and the price drops bellow the support levels, then the support level turns into a resistance level that will be the highest place the chart goes to. This is because the traders will sell that currency when it reaches the former support level in order to limit their losses and regain the former price they had.
Reading Online Forex trading Bar Chart Patterns When you look at a bar chart, you can sometimes recognize patterns that can help you make the next trading decisions by anticipating how the online Forex market is going to behave. After you practice recognizing these patterns you will be able to see them automatically when you see a certain bar chart.
Analyzing Reversal Patterns in Bar ChartsReversal patterns are recognized in the online Forex trading market with short and close drops and rises in the graph.
A Double Top - Here you see a long rise in the bar chart, then a short drop, another rise and a drop. The prediction says the next drop will be long, and the investor can predict the currency will drop. The shape of the double top looks like the letter "M".
A Double Bottom - The bar chart for this case is a long drop, then a short rise, a short drop and a rise. The final rise is predicted to raise more by the investor. The shape of the chart resembles a "W".
A Head-and-Shoulders Top - This bar chart has one larger top separating the two smaller tops that are similar to the double top. The larger top is called "the head", and the two smaller tops are called "the shoulders".
Head-and-Shoulders Bottom - This bar chart is the same as the previous chart only upside-down.
How to Read Continuation Patterns on Bar Charts
The continuation pattern indicates a certain direction that the online Forex graph follows, that is interrupted by a shot change in direction, and sonly after continues with the previous direction.
The Flag - In this bar chart continuation pattern, the change in direction of the online Forex currency consists of the same difference between the lows and the highs, and a continuing downward or upward slope of the graph.
A Symmetrical Triangle - In this case in the change of direction area the line of the bar chart becomes closer as the previous direction of the chart approaches.
An Ascending Triangle - This graph interruption indicates the unchanging of the high price, while the low price keeps getting closer to the high until the pattern continues.
A Descending triangle - The same as the ascending triangle only with the opposite roles, here the low price is the one that stays the same.
Rectangle - This is a pattern when the high and low prices stay almost the same for some time.
Gaps in the Bar ChartGaps occur when the bar chart leaps and leaves a gap between the former price of the online Forex currency and the next price. The breakaway gap continues the former trend in a different place, with a change in direction. An exhaustion gap comes right before a drop indicating the currency's exhaustion. An island reversal gap occurs when the chart suddenly breaks from the previous trend and immediately breaks again to another location. Some Economic Indicators are the causes for such gaps, but sometimes they occur spontaneously by themselves for no apparent reason.
Trudy Bates - Market Expert
Ascending trendIf currency demand exceeds the currency offer the exchange rate grows on Forex. On the contrary if the volume of currency which participants of the market wish to sell under the given concrete price more than volume of currency which other participants of the market wish to buy the rate falls.
If demand exceeds the offer long time and causes growth of a rate sooner or later it is saturated. Since some moment the offer starts to exceed demand. It leads to sale of currency that is expressed in some decrease of its rate - trend correction.
Trend correction: the movement directed against a direction of the previous trend. The given movement does not surpass the previous trend. If to consider a trend is the phenomenon which returns the prices in "a correct channel" and does not allow market movement to deviate fundamental factors.
On an ascending trend a part of participants open long positions, satisfied by growth of an exchange rate and start to close positions - to sell currency with the purpose to fix the profit quickly. However if the principal causes causing increased currency demand, have not changed, currency buying renews, and the rate increases. Then movement of a rate gets a direction, or a trend.
There are two kinds of trend: ascending and descending trend
Ascending trend - each time in exchange rate achieves higher value in comparison with previous rate - price movement at which each subsequent local maximum and local minimum above previous.
The bottom points of waves (local minima) join a direct line
Descending trendDescending trend - each time Forex rate achieves lower value - price movement, at which each subsequent local maximum and local minimum below previous.
Trend line is drawn by joining of the top points of local maxima
The more points of Forex rate values get on a straight line, the more trend is especially confirmed. One of the trend force criteria is its reaction to support and resistance levels. Break of support/resistance level means, that the dominating trend keeps the force. The more trend encounters the resistance or support, being unable to overcomes them, the more strong signal about weakness of a trend we receive, and the more probability of a turn in the future.
There is a number of the general rules of trend force definition:
- The longer the trend is kept, the stronger it is, however it has a limit;
- The more abruptly and more quickly trend, the stronger it is;
- The long flat trend has an every prospect of the continuation;
- Very abrupt trend can abruptly turn over also;
- Any trend slackens, however probability of continuation of a trend in its any point above probability of its turn.
Reversal trendChange of a trend (reversal) is expressed in change of a rate movement direction after a break point (penetration point). However it should be distinguished from a simple non-standard rate deviation which doesn't lead to change of a trend.
The break point forms a sell signal for the confirmed change of an ascending trend, the confirmed change of a descending trend forms a buy signal on Forex.
The best confirmation of change of a trend can be received when the former resistance line becomes a support line of a trend and on the contrary.
Transition of a support line to a resistance line.
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