A fundamental part of a forex traders success relies on the ability to accurately and efficiently comprehend technical data which is represented by one or more currency trading charts. Although different markets behave in very different ways, for example, the forex market and the ETF or stock market behave in disimilar ways and they have different external influences affecting their behavior, they all require fundamental and technical analysis in order to provide a profitable trading strategy.
In order for any technical analysis to be carried out the information regarding the currency in question is shown on a trade price chart. This way a trader or analyst can easily interpret the data being looked at as well as factor in any other influences they may think will impact the currencys' movement. fx trading charts are the favored analysis tool for the technical trader or analyst. From these charts a large deal of information can be gleaned which helps the technical trader formulate their strategy going forward.
Trading charts can be used to view trading data over many different timeframes depending on the style of trading the client is using. For example a day trader may only be interested in configuring a chart to show a single days data and have the chart show time periods of anything from seconds to minutes to hours.
Now that the price chart is showing the correct parameters it is time to insert additional indicators which can be situated over the time/price line and it is these indicators which technical analysts and traders utilize to provide trade information. There are many different indicators available to the technical analyst to supplement the price charts, the main indicators being :-
1) Volume Indicators
2) Momentum Indicators
3) Moving Average Indicators
1) Volume indicators relate to the volume of currency traded in a specific period and how strong or weak the backing is for a price move. Volume backs up price direction typically and when a trader or an analyst refers to volume they are talking about the OBV or 'On Balance Volume'
2) Largely speaking momentum is used to assess the strength of specific trends which can help work out how long and far the trend will continue. It is generally recognized that the most useful momentum indicators are the Relative Strength Index (RSI), Moving Average Convergence/Divergence (MACD) and Stochastics. These momentum indicators will allow the viewer to view the oversold and overbought areas of the chart and quantify the divergence of the signal lines.
3) A moving average indicator is useful when it is placed on the chart as it illustrates trends due to the smoothing effect of the averages being used.
This is only the beginning of the depth of technical analysis that can be performed using trading charts but you can see why many forex traders spend a great deal of time learning the different technical indicators, how to interpret them and ultimately use them to guide their trading decisions.
The other aspect to trading analysis is fundamental analysis. Rather than focus on past events as in technical analysis, fundamental analysis concentrates on events and actions now and in the future that will affect or potentially affect currency prices. The primary tool used here is the economic calender, a list of dates when important financial decisions and statements are made by people of significant influence mainly that of the USA, Eurozone, UK and Japan. Of notable interest would be national or federal budget announcements, GDP figures including official projections as well as unemployment figures and interest rates. All of these decisions can have an impact on the value of a particular currency but also unfortunate events can also be very influential such as natural disasters and acts of terrorism.
There is little doubt that pricing charts are crucially important in order for a trader or analyst to perform technical research, however it would be wise not to ignore the fundamental influences on the market. There are those people out there who claim they are a purely technical trader or a purely fundamental trader however if you want to make forex trading a profitable and lasting endeavour then you must learn to use trading charts thoroughly and effectively and then place into context your findings with fundamental analysis.