Types of Charts
There are 3 main types of charts in forex trading. They are:
- Line Chart
- Bar Chart
- Candlestick Chart
In this guide, we will not be focusing on the line chart and the bar chart, because they are not used by the majority of the traders. The only chart type we will be using is the candlestick chart. Below is an image of the Candlestick chart in MetaTrader 4.
The chart above shows candlesticks with 2 different colors these are the bullish candle and the bearish candle. The green candle is the bullish candle where the opening price is at the bottom and the closing price is at the top.
The red candle is the bearish candle where the closing price is at the bottom and the opening price is at the top.
Technical Analysis
When it comes to technical analysis there are several methods to analyze the market. These can be mainly through technical indicators or price action methods. We first go through basic technical analysis methods that you can start utilizing today. In the advanced section, we will go through all the technical analysis methods that will help you take your trading to the next level.
Support and Resistance
Understanding support and resistance is very important. It is crucial to learn how to find support and resistance zones properly. Below shows a chart with the support and resistance zone drawn.
Support & resistance zones are points where the market touches and reverses multiple times. For support and resistance zones to be good the market has to touch them at least 2 times, the more the better of course.
The above pattern is called a horizontal channel. Trading within a channel is a great way to trade reversals. You can enter a trade when the market touches support or resistance. There are a few powerful methods to confirm whether the market will actually reverse or not. This we will discuss in the advanced trading section. But, for now, you need to understand how to find these zones properly.
You can also draw support and resistance in a trending market as well. The pattern below shows a down channel.
The above chart shows the support and resistance zones drawn on a down channel. You can also have good trades within a down channel or an up channel. The two chart below shows two different up channels.
Lower Lows/Lower Highs and Higher Lows/higher highs
It’s important to understand the concept of swing highs and swing lows if you want to find a trend properly. The image below shows lower highs and lower lows being marked using arrows. The image in particular shows a potential downtrend.
The chart below shows an uptrend. You can see the higher highs and higher lows marked on the image.
How to find Major Zones
It is very important to understand how to find major zones in a chart. Take the chart below for example.
Now take the same chart and draw all the major zones as shown below. As you can see there are multiple support and resistance zones on the chart.
Now let’s analyze one support and resistance line. The chart below shows a support and resistance line marked with an arrow. As you can see the line starts as resistance and then becomes a support and so on. This line is a very important zone and you can expect reversals to happen in this zone further along the chart.
That\’s all for the basic technical analysis section. In the advanced section, we will discuss in detail how to confirm reversals and trends. Also, we will discuss advanced profitable trading strategies.