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  1. #1
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    currencies Charts

    currencies Charts


    currencies Charts are the foundation of technical analysis to the extent that technical analysts use charts almost exclusively. Stock charts provide a graphical representation that depicts price action and market data of the underlying security in a structured format. To the skilled chart reader, it provides an insight to the psychology of traders and balance of buying and selling pressure at that point in time and makes the recognition of trend lines and chart patterns possible.

    Modern charting and trading software have made charting a far less cumbersome process of drawing price movements on graph paper, reducing it to a very simple practice that can be accomplished in a few clicks. This has allowed technical analysts to shift quickly between different time frames and to quickly apply a range of technical indicators to a price chart.
    Types of Stock Charts

    However, there are different types of charts that can be used in technical analysis. These include the popular bar charts, candlestick charts, and line charts, as well as the more recent point and figure charts, kagi charts and renko charts.

    Candlestick charting, Kagi charts and Renko charts were all developed in Japan. They were introduced to the western world by Steve Nison, in his books, Japanese Candlestick Charting Techniques and Beyond Candlesticks: New Japanese Charting Techniques Revealed.

    With the exception of the more recent point and figure charts, kagi charts and renko charts, which only plots a price change when a new high or low is made, all charts plot price action for a specific duration of time, which is called the time-frame or periodicity, on a graph with the time on the horizontal axis and the price levels on the vertical axis. However, each of these types of chart plots price action differently, and displays different information about the price action in a given time-frame.

    Bar charts and candlestick charts are the most widely used price charts, followed by line charts. Point and Figure charts, Kagi charts and Renko charts are not as widely used as they do not plot price action over a given time-frame. They also do not keep track of volume levels. For these reasons, oscillators and moving averages that are dependent on a fixed time-frame cannot be applied to these types of charts.


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  3. #2
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    Line Charts

    A line chart is the most basic and simplest type of stock charts that are used in technical analysis. The line chart is also called a close-only chart as it plots the closing price of the underlying security, with a line connecting the dots formed by the close price.




    In a line chart the price data for the underlying security is plotted on a graph with the time plotted from left to right along the horizontal axis, or the x-axis and price levels plotted from the bottom up along the vertical axis, or the y-axis. The price data used in line charts is usually the close price of the underlying security. The uncluttered simplicity of the line chart is its greatest strength as it provides a clean, easily recognizable, visual display of the price movement. This makes it an ideal tool for use in identifying the dominant support and resistance levels, trend lines, and certain chart patterns.

    However, the line chart does not indicate the highs and lows and, hence, they do not indicate the price range for the session. Despite this, line charts were the charting technique favored by Charles Dow who was only interested in the level at which the price closed. This, Dow felt, is the most important price data of the session or trading period as it determined that period's unrealized profit or loss.

    Line charts or close-only charts are still favored by numerous traders who agree the closing price is the most important data and are not concerned with the noise created price spikes and minor price movements, or the speculation that characterizes the start of the trading session.

    The following is a chart of the EUR/USD with a 15-minute time frame.

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  5. #3
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    Bar Chart

    Bar charts are one of the most popular forms of stock charts and were the most widely used charts before the introduction of candlestick charts. Bar charts are drawn on a graph that plots time on the horizontal axis and price levels on the vertical axis.



    These charts provide much more information than line charts as they consists of a series of vertical bars that indicate various price data for each time-frame on the chart. This data can be either the open price, the high price, the low price and the close price, making it an OHLC bar chart, or the high price, the low price and the close price, making it an HLC bar chart. The height of each OHLC and HLC bar indicates the price range for that period with the high at the top of the bar and the low at the bottom of the bar. Each OHLC and HLC bar has a small horizontal tick to the right of the bar to indicate the close price for that period. An OHLC bar will also have a small horizontal tick to the left of the bar to indicate the open price for that period. The extra information is one of the reasons why the OHLC charts are more popular than HLC charts. In addition, some charting applications use colors to indicate bullish or bearishness of a bar in relation to the close of the previous bar. This makes the OHLC bar chart quite similar to the candlestick chart, except that the OHLC chart does not indicate bullishness or bearishness of the period of one bar as clearly as the candlestick chart (the color of an OHLC bar is always in relation to the close of the pervious bar rather than the open and close of the current bar).
    OHLC Bars



    Most bar charts contain a lower pane that plots the total volume traded during a particular period. This part of the chart has a separate scale on the vertical axis to illustrate volume levels. It too consists of typical vertical bars.

    The following two charts of the EUR/USD illustrate the differences between line and bar charts in terms of the amount of information each one parts. First is the line chart that only plots the close price of the underlining security and the second is the OHLC bar chart. Both charts have a 15-minute time frame and cover the exact same period.






    Bar Chart Patterns

    The OHCL bar chart also illustrates a few simple trend reversal patterns that consist of two to three bars. These include the key reversal, the inside bar, and the outside bar. In addition, bar charts can also trace complex chart patterns, such as the head and shoulders pattern, that recur on a reasonably regular basis.
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  7. #4
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    A Candlestick Chart




    Japanese candlestick charts form the basis of the oldest form of technical analysis. They were developed in the 17th century by a Japanese rice trader named Homma and was introduced to the rest of the world in Steve Nison's book, Japanese Candlestick Charting Techniques. Candlestick charts provide the same information as OHLC bar charts, namely open price, high price, low price and close price, however, candlestick charting also provide a visual indication of market psychology, market sentiment, and potential weakness, making it a rather valuable trading tool.

    Candlesticks indicate a bullish up bar, when the closing price is higher than the opening price, using a light color such as white or green, and a bearish down bar, when the closing price is lower than the opening price, using a darker color such as black or red for the real body of the candlestick. Thus, on a green candlestick, the close price will be at the top of the candlestick real body and the open price at the bottom as the close price is higher than the open price; conversely on a red bar the close price will be at the bottom of the candlestick real body and the open price at the top as the close price is lower than the open price. For both a bullish and a bearish candlestick, the high price and the low and the low price for the session will be indicated by the top and bottom of the thin vertical line above and below the real body. This vertical line is called the shadow or the wick.

    The shape and color of a candlestick can change several times during its formation. Therefore the trader must wait for the candlestick to be formed completely at the end of the time-frame to analyze the candlestick, forcing the trader to wait for the bar to close.
    Candlesticks and Market Psychology




    Candlesticks are also good indicators of market psychology, i.e., the feelings of fear and greed experienced by the buyers and sellers, and the strength of those feelings. Thus a bullish (green) candlestick with no shadows (which is called a Marubozu) indicate strong bullishness, and the longer the Marubozu candlestick the stronger the bullishness. A bullish candlestick with a relatively long lower shadow, a relatively small real body and a short or no upper shadow indicates that the buyers were able to drive the price up from the low. This is also a strong bullish candlestick. However, a bullish candlestick with a relatively long upper shadow, a relatively small real body and a short lower shadow indicates that sellers were able to drive the price down from the high but were not able to defeat the buyers. Although this candlestick is bullish, it is weak; and the longer the upper shadow and the smaller the real body, the weaker the candlestick.

    Candlestick charts also indicate potential trend reversal patterns in only one to four candlesticks with subsequent candlestick patterns proving confirmation. When using a candlestick for confirmation of a potential trade signal, it is important to take into account the relative strength or weakness of that candlestick and its location overall in the trend lines on the chart. A weak candlestick should never be taken as a confirmation of a potential trade.

    The following two charts of the EUR/USD illustrate the subtle differences between a bar chart and a candlestick chart. The first is the bar chart followed by a candlestick chart. Both charts have a 15-minute time frame and cover the exact same period.




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  9. #5
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    Types of Candlesticks

    Candlesticks can have different shapes, depending on the size of the candlestick body and the length of the shadows on either end of the body. It is important to remember that a candlestick does not need to have shadows. When the candle closes at the high for that period there is no shadow above the candlestick as the price was not any higher. Conversely, when the candle closes at the low for that period there is no shadow at the bottom of the candlestick as the price was never lower. When the close price is the same as the open price, the candlestick will have no real body, and no color. Finally, a light colored candlestick indicates that the price rose during that period and closed above the open while a dark colored candlestick indicates that the price declined as it closed lower than where it opened. Below is a list of the different types of candlesticks, some of which are single candlestick patterns.
    The Typical Candlestick

    The typical candlestick has a body and a shadow above and below the open price and close price, which indicates that the high and the low of the time-frame in which the candlestick was formed was higher and lower than the open price and the close price.
    Marubozu
    Marubozu candlesticks

    When the open and close are at the high and the low, or vice versa, then the candlestick will have no shadow above or below the real body. These candlesticks are called Marubozu, which means shaven, and can be either bullish and light in color, if the Marubozu closes at the high of the period, or bullish and dark in color if it closes at the price low. A bullish Marubozu indicates strong buying pressure as the buyers did not allow the sellers to drive the price down. The length of the candlestick indicates the strength of the bullishness, especially when the Marubozu is longer than the preceding candlesticks. Conversely, a bearish Marubozu indicates strong selling pressure. A bullish Marubozu at end of a downtrend is a potential reversal signal. You should close your short position and wait for the next candlestick to enter a long position if it is also bullish. Similarly, a bearish Marubozu at end of an uptrend it is also a potential reversal signal.

    The Marubozu without a shadow at either end is less common than a Marubozu that is shaven on one end but has a shadow on the other end. The shadow can form either the opening of the candlestick or at its close. When the shadow forms at the closing price it tentatively indicates weakness as the price was pushed back near the end. However, this is a weak indication and does not necessarily indicate a reversal.
    Doji
    Doji candlesticks

    When the close price and the high price are the same or very close, the candlestick will have no or little real body. These candlesticks are called Doji, which means unskillfully. Doji candlesticks have no color and are neither bullish nor bearish. They tend to indicate momentary indecision and uncertainty in the market and may be a prelude to a trend reversal but it requires confirmation from subsequent candlesticks as Doji that appear in multiple candlestick patterns tend to be clearer indications of trend reversals.

    There are different types of Doji candlesticks, depending on the position of the cross bar indicating the open and close prices. When the cross bar is more or less central with an equal length shadow on either side, it's called a Rickshaw Man Doji. When the cross bar is at the bottom of the shadow, i.e., there is no lower shadow, it's called a Gravestone Doji. When the cross bar is at the top of the shadow and there is no upper shadow, it's called a Dragonfly Doji, though some call it an Inverted Gravestone.
    Hammer and Hanging Man
    Hanging man and Hammer

    When the candlestick has a short real body, which is not more than a third of the entire candlestick, a long lower shadow and little or no upper shadow, it is called either a Hammer or a Hanging Man, depending on whether it is at the top of an uptrend or at the bottom of a downtrend. When it appears at the top of an uptrend it is called Hanging Man and when it appears at the bottom of a downtrend it is called a Hammer. Like the Doji, Hammer and Hanging man indicates momentary indecision and uncertainty and require confirmation from the subsequent candlestick.
    Shooting Star and Inverted Hammer
    Shooting star and Inverted hammer

    The Shooting Star and the Inverted Hammer are the opposite of the Hanging Man and Hammer. These candlesticks also have a short real body, which is not more than a third of the entire candlestick, but they have a long upper shadow and little or no lower shadow. It is called a Shooting Star when it appears at the top of an uptrend, or an Inverted Hammer when it appears at the bottom of a downtrend. Like the Hammer and Hanging Man, the Shooting Star and Inverted Hammer indicate momentary uncertainty and indecision and require confirmation from the subsequent candlestick.

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  11. #6
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    Point and Figure Charts



    Point and Figure (P&F) charts date back to at least 1880's and differ from other stock charts as it does not plot price movement from left to right within fixed time intervals. It also does not plot the volume traded. Instead it plots unidirectional price movements in one vertical column and moves to the next column when the price changes direction. It represent increases in price by plotting X's in the column and decreases in price by plotting O's. Each X and O represents a box of a set size or price amount. This box size determines how far the price must move before another X or O is added to the chart, depending on the direction of the price movement. Thus if the box sixe is set at 15, the price must move 15 points above the previous box before the next X or O is plotted. Any movement below 15 is ignored. For this reason, very little plotting occurs during stagnant market conditions while a considerable amount of plotting may occur during volatile market conditions.

    The chart also has a box reversal amount that determines how many boxes must occur in the opposite direction before it is seen as a reversal. Only once the price is seen as having reversed is a new column started. In a 3 box reversal requires the price to move three boxes (of 45 points if each box represents 15 points) against the current direction before it is seen as a reversal.

    Some traders argue that P&F charts are one of the best charting techniques for accurately determining entry and exit signals as they present a clear indication of support and resistance lines, as well as clear trend lines. P&F charts also trace its own set of chart patterns, such as the fulcrum, the saucer, and the V base.

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  13. #7
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    Kagi Charts



    Kagi charts originated in Japan, in the 1870s, where they were developed to track the price movement of rice. They are similar to Point and Figure charts and Renko charts in that they are time independent and only move when the closing price of the underlying security has advanced or declined by a predetermined amount. In the case of Kagi charts, an equal length vertical line segment is drawn for every the multiple of the predetermined amount that the price closes during a specified time period. If the price does not move by at least the predetermined amount, no line segment is drawn and if the price does reverse by the predetermine amount, a short horizontal line is drawn to the next column and a line in the new direction is drawn. The horizontal line that joins a rising line to a declining line is called a "shoulder" and the horizontal line that joins a declining line to a rising line is called a "waist".

    When the line in the opposite direction moves beyond the shoulder or waist, i.e., when it exceeds the length of the line in the previous column, it changes in thickness, denoting a reversal in the direction of the trend. Thus, when a downward line moves beyond the previous wait, it becomes a thin line called a yin line; and when an upward moving line moves beyond the previous shoulder, it becomes a thick line called a yang line. A thick yang line denotes a bullish up trend while a thin yin line denotes a bearish down trend. This change from yin to yang and from yang to yin is used to generate trading signals.

    The reversal amount that is used to construct a Kagi chart can be specified using absolute points, a fixed percentage, or the Average True Range (ATR).

    Support and resistance lines, trend lines and other chart pattern analysis techniques can also be applied to Kagi charts.

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  15. #8
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    Renko ChartsRenko charts are a Japanese chart type that has been brought to the West's attention by Steve Nison, in his book, Beyond Candlesticks: New Japanese Charting Techniques Revealed. Renko charts are based on point and figure charts. It is called 'renko' charts because of its structure. The word 'renko' is derived from the Japanese word 'renga', which means bricks, and the structure of Renko chart shows a stack of bricks or boxes arranged diagonally in the trend with each brick having the same dimensions. As with point and figure charts, a new brick is only drawn on a Renko charts when the close price has advance or declined by at least a predetermined fixed amount above or below the previous brick or box, with a brick or box bring drawn for each multiple of the fixed amount that the price action has exceeded the top or the bottom of the previous brick. Thus, the price movement of a given time period or time-frame can be represented by one brick, numerous bricks or no brick.

    For example, if the chart has a pre-determined size of five points, and the top of the last brick is 100, a bullish hollow brick is only drawn when the price action in the next time period closes above 105 with additional hollow bricks being drawn for every five points higher close is. Thus, if the closes at 103, no brick is drawn as the price has not advanced by the predetermined amount, and if the price closed a 123 points, four rising bricks would be drawn: the first from 100 to 105, the second from 105 to 110, the third from 110 to 115, and the fourth from 115 to 120. Each of these bricks is drawn in the next column to the right, making the chart time independent. Also, in the case of the price moving to 123, low of the last brick would be 115. In order for a bearish black brick to be drawn, the price in the following time period would need to close at least five points below the last brick, which had a low of 115. in other words, it would need to close at 100 or lower for at least one bearish black brick to be drawn.

    The high and low of a time period is ignored in Renko charts, and while the close price is used to determine the amount and direction of the bricks to be drawn, the actual close price is not as important as the top or bottom of the last brick. The following chart is a 30-minute candlestick chart of the EUR/USD followed by a comparative Renko chart of the same time period. The Renko chart has a point size of 50 points (5 pips) and the arrow on the two charts corresponds with the same price.







    Setting the Point Size

    Although the example above used absolute points for the pre-determined point or brick size, you can also use the Average True Range (ATR) to set the point size more dynamically, increasing and decreasing the brick size as the market volatility increases or decreases.
    Trading the Renko Chart

    The Renklo Chart is a trend following chart that eliminates lateral price movements. It's main signals are the emergence of a new trend. In theory this occurs when a bullish hollow brick is followed by a bearish black brick it singnifies the potential start of a down trend and signals a short entry; and when a bearish black brick is followed by a bullish hollow brick it singnifies the potential start of a up trend and signals a long entry. However, in practive a number of bricks could be drawn to represent the price movement of a single time period and you can only draw the next brick or bricks once you know what the close price is for that period. This means that the actual entry signals are not neccessarily the first brick of a different color to its predecessor.
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  17. #9
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    The Time Frame

    The time frame or periodicity of a price chart refers to the duration in time of a single price bar. This can be anything from a second to a year or more, depending on the amount of data available. The longer the time frame, the less frequent the number of signals the chart will generate. This is because a 5 minute chart will hold six times more price bars and price data than a 30 minute price chart, for example. Thus, an indicator applied to a 5-minute chart would change and move six times faster than the same indicator applied to a 30-minute chart.
    Choosing a Time Frame

    Choosing a specific time frame within which you will trade is important as the time frame must suit your personality and trading style. Some traders prefer the hurly burly of a 5-minute chart with its relatively high frequency of trades while others will prefer the more calm nature of a 30-minute chart that smoothes out the "noise" of a 5-minute chart.

    Many novice traders are led to believe that the shorter time frame is where money is made, even traders that are successful on a longer time-frame can bee tempted to switch to a shorter timeframe. However, the shorter time-frame is not always more profitable. It is more difficult to trade as there is less time available to the trader to make a trading decision with an entry price, a stop level and a target price, and volatility at the faster and shorter time frames and the smaller ranges means that slipage will often consume a larger proportion of the availble profits. A propotionally larger slipage on both entry and exit also reduces the risk/reward ratio. This makes a shorter time-frame less attractive than a longer time-frame for most traders.

    Furthermore, changing to a shorter and faster time frame can be a painful and expensive experience as the trader adjusts to nature of a faster moving price chart. Often a trader will not be able to make this adjustment successfully. Those moving to a longer, and slower, time-frame, on hte other hand, are usually able to make the adjustment despite intitial teething problems.
    Multiple Time Frames

    This does not mean that you should not consider the price action at different time frames to the one within which you are trading. Indeed, there are advantages of considering multiple time frames before taking a position. The most significant being that multiple time frames provide a context for the trade signals generated on a single time frame and increases the probability of those signals. This is particularly true of a higher time frame chart. A lower time frame chart can also be used to find more precise entry and exit points.

    The various time frames you take into consideration should vary by a factor of 3 to 5. In other words, the time frame should be three to five times larger or smaller than your main time frame within which you trade. Thus, if you trade on a 30-minute chart, you could consult a 10-minute chart (three times smaller) for better entry and exit points and a 2-hour chart (four times larger) for the wider context. If reason for this is that the different time frames should provide more information without being too far removed from your actual trades. In our example, a 10-minute chart will provide information about the price action in each 30-minute bar, while a 20-minute chart would not show this action as the 20-minute and 30-minute charts will be very similar.

    Lastly, while multiple time frames are useful for improving the probabilities of your trades, it should not be used to break your trading rules. You should not, for example, switch to higher time frame to look for reasons not to cut a loosing position in contradiction to your trading rules.

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  19. #10
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    Quote Originally Posted by ehabelmasre View Post
    A Candlestick Chart




    Japanese candlestick charts form the basis of the oldest form of technical analysis. They were developed in the 17th century by a Japanese rice trader named Homma and was introduced to the rest of the world in Steve Nison's book, Japanese Candlestick Charting Techniques. Candlestick charts provide the same information as OHLC bar charts, namely open price, high price, low price and close price, however, candlestick charting also provide a visual indication of market psychology, market sentiment, and potential weakness, making it a rather valuable trading tool.

    Candlesticks indicate a bullish up bar, when the closing price is higher than the opening price, using a light color such as white or green, and a bearish down bar, when the closing price is lower than the opening price, using a darker color such as black or red for the real body of the candlestick. Thus, on a green candlestick, the close price will be at the top of the candlestick real body and the open price at the bottom as the close price is higher than the open price; conversely on a red bar the close price will be at the bottom of the candlestick real body and the open price at the top as the close price is lower than the open price. For both a bullish and a bearish candlestick, the high price and the low and the low price for the session will be indicated by the top and bottom of the thin vertical line above and below the real body. This vertical line is called the shadow or the wick.

    The shape and color of a candlestick can change several times during its formation. Therefore the trader must wait for the candlestick to be formed completely at the end of the time-frame to analyze the candlestick, forcing the trader to wait for the bar to close.
    Candlesticks and Market Psychology




    Candlesticks are also good indicators of market psychology, i.e., the feelings of fear and greed experienced by the buyers and sellers, and the strength of those feelings. Thus a bullish (green) candlestick with no shadows (which is called a Marubozu) indicate strong bullishness, and the longer the Marubozu candlestick the stronger the bullishness. A bullish candlestick with a relatively long lower shadow, a relatively small real body and a short or no upper shadow indicates that the buyers were able to drive the price up from the low. This is also a strong bullish candlestick. However, a bullish candlestick with a relatively long upper shadow, a relatively small real body and a short lower shadow indicates that sellers were able to drive the price down from the high but were not able to defeat the buyers. Although this candlestick is bullish, it is weak; and the longer the upper shadow and the smaller the real body, the weaker the candlestick.

    Candlestick charts also indicate potential trend reversal patterns in only one to four candlesticks with subsequent candlestick patterns proving confirmation. When using a candlestick for confirmation of a potential trade signal, it is important to take into account the relative strength or weakness of that candlestick and its location overall in the trend lines on the chart. A weak candlestick should never be taken as a confirmation of a potential trade.

    The following two charts of the EUR/USD illustrate the subtle differences between a bar chart and a candlestick chart. The first is the bar chart followed by a candlestick chart. Both charts have a 15-minute time frame and cover the exact same period.



    No doubt, candle chart is the most popular chart than the others 2 trading charts! When I was a new trader then I just used bar and line chart; to know their principles! I must say, candle chart is more technical informative! It provides us more information’s about the buyers and sellers! On the other hand, I also use fundamental analysis; so I am doing my live trading with a combo trading skill of fundamental and the candle chart.

  20. ARIONFORXtarder
 

 

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