The purpose of Forex charts is to help you make an educated decision when trading on the Forex market. Charts are only as good as the information you put into them. With the right information and the right chart, you can make large profits from your capital investments.
A Forex chart should show you trends in the market. Charting historical data is very easy and the charts show exactly what happened. The key is to do the same in the future. Forex charts often show a basic trend line. While traders don’t use this information to buy or sell, it does reveal an overall expectation. You need to be able to read support and resistance on a chart. Support shows where prices should rebound and resistance is the high point they could rebound to.
Watch for breakouts in a chart. When this happens, it usually means that a currency’s supply and demand position is changing. Breakouts often reveal new trends. Many people don’t take advantage of breakouts and miss the opportunity to make big money. People tend to want to buy low and sell high. Traders will wait for the price to drop back and in the meantime miss a new trend where the price continues to rise.
How can you be sure that the price won’t suddenly drop? Volatility can answer that question. If the size of the change is large, this is usually a good sign that the breakout is going to go up and remain up for a period. If the volatility is low, this means that while the price may go up, it may come back down quickly.
Momentum is another indicator that investors often overlook. Momentum describes the speed at which the trend is moving. Two types of indicators to watch for include the Stochastic and the Relative Strength Index. Each of these indicators paints a visual picture of how the price may change. Understanding supports and breakouts, and being able to ensure they are valid indicators of change, is important to your success in the Forex market.
Remember that you need the best information to begin with. Up-to-date data is just as important as the decision you make. If you make a decision based on old or inaccurate data, your trade will probably cost you money. As quickly as information changes in this market, you can’t afford to wait. Use the tools, Forex charts, and you can work towards large profits.