You cant trade and invest effectively, unless you understand Candlestick charting. With the advancement of technology, many options exist for the charting of currencies. There are several types of charts. The four main charting methods are: 1) Line Charts, 2) Bar Charts, 2) Point and Figure Charts and 4) Candlestick charts.
As a currency trader, you need to understand the various terms that are frequently used in Technical Analysis. By definition, Technical Analysis is the study of historical and ongoing price data through charts, price patterns and chart indicators. Charts display price action in time intervals using bars and candlesticks.
Moving averages are a very popular tool among the traders because they are a lagging indicator of the price action. Short and long term trends are easier to identify using moving averages.
Based only on the market activity of the previous few days, most candlestick patterns are valid. Using one of these without knowing about the previous trends wouldnt be very useful. For instance, some of the candlestick patterns indicate a change in trend.
Suppose you want to detect a trend reversal breakout. You can identify it through the MACD divergence signals. You should look at how the MACD histogram is performing when you spot a potential breakout scenario on a currency pair chart.
When there is a lack of momentum or the breakout is small and weak, a whipsaw breakout usually occurs. When prices move out of a price range, then back into the price range and then breaks out of the level again, stopping both breakout traders and faders at least once, whipsaw takes place.
A breakout typically occurs when the currency price moves beyond the period of consolidation or range trading. Who doesnt want to reap massive profits from a big price move in a short time? This is what breakout trading can provide you.
Few things are more satisfying to me that bare chart trading. Ive seen traders with so many indicators on their screen that I could not even see the price of the currency pair. What do any of these indicators tell you anyway? Do I need a MACD or a CCI? I can see which direction the trend is moving without them. How about a stochastic? I can see where candles are closing relative to the high or low. Other than some horizontal lines at key support and resistance levels, some Fibonacci retracements, and trend lines I often have nothing on my charts at all. All of these are topics for future articles.
Perhaps the best advice that you will receive in your trading career is live to trade another day. Currency markets are volatile, brutal and unforgiving. You should learn to survive in the markets.
In order to employ the breakout fading strategy, you should be able to identify likely false breakouts. There are some technical formations where the false breakouts are more likely to occur in the currency price charts. You need to apply a lot of common sense in identifying a false breakout.
