Without technical charts, you cannot perform foreign exchange technical analysis. Technical charts are the essence of the purely objective way of predicting market trends. You study these charts to find patterns that could predict the rise and fall of a currency’s value. But how do you use technical charts? Here are 5 steps you must use to do so effectively:
Unless you are studying someone else’s chart, you have to create your own. When you do that, you are able to really study the raw data. You know where the data are from and whether they are accurate or not. You have to choose a chart that will best satisfy what you are looking for. You can use a computer to create your chart. There is even a choice of different charts. All you need to do is use a foreign exchange technical analysis software.
Step two: Plot the points.
Once you have chosen the chart, you can now plot the points. As with picking the type of chart, you can also use the software to plot the points presented in the chart. Make sure that you are closely following the raw data that you have collected.
Step three: Find the trends.
Once all the points have been plotted, it is time for you to look at peaks and valleys in the charts. These ups and downs will be forming patterns over time. Look for trends that form from recurring ups and downs. But do not just look at these points–it is best that you mark those points for later analysis. Use vertical or diagonal lines to mark important trends that you have found. You may also draw trends line, which are lines drawn through the major low points.
Step four: Find points of support and resistance.
So what do these support and resistance mean in the world of foreign exchange trading? Well, support refers to a barrier that prevents a value from falling. In contrast, resistance refers to a barrier that prevents a value from rising. You must then mark down points of support and resistance, since a lot of buying and selling at a certain value is what is causing the support or resistance. Mark the barriers with horizontal lines.
Step five: Finalize the market predictions.
Now, it is time for you to look back at the chart that you have created and plotted. Take note of all the patterns and the points of support and resistance. Based on those patterns and points, you may already finalize your market predictions. Once you have predicted what could happen on the next trading day, week or month, depending on the period that you have been studying, you can already decide on your move. Of course, you should also come back to study your charts again after you have your results based on your next trading move.
Technical charts eliminate the need for guess work, but work on the assumption that trading history repeats itself. They also do not follow the idea that currency values can be affected by other factors, such as sudden death of a leader, breakout of war, or unprecedented financial crisis.
You can see how the pros use technical chart analysis at this free online resource. Just click here.