Price charts can be simple line charts, bar charts, or candlestick charts. These are charts that display prices over a specific period of time. These time frames can range from minutes to years or any time interval in between.
Line charts are the most readable and give a general idea of price action. Only the closing price for the selected time period is displayed, making it easy to identify patterns and trends, but does not provide detailed charting or candlestick information.
On the chart, the line length shows the price spread for this period. The larger the bar, the larger the price difference between the high and low prices during the period. The tab on the left shows the opening price and the tab on the right shows the closing price, so you can easily see if the price is rising or falling in an instant. The bar then offers to change the price. Printed graphs can be difficult to read, but most software graphs have a zoom feature that makes converging graphs easier to read.
The Japanese candlestick chart was originally developed for analyzing candlestick contracts and is very useful for price analysis in the Forex market. Candlestick charts are very similar to bar charts in that they show highs and lows, as well as open and close prices, over a given period of time. However, color coding makes the candlestick chart much easier to read. Usually, green candles indicate an increase in price, while red candles indicate a decrease.
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The actual shape of a candle relative to the candle around it tells us a lot about price action and is very useful for analysis. Depending on the price spread, candlesticks form different patterns. Many of the shapes have rather strange names, but once you learn the patterns, you can easily separate and analyze them.
Price charts are not usually used alone. For the full effect, they need to be supplemented with some technical indicators. Technical indicators usually fall into a fairly broad category. Some of the most common indicators used to monitor and track market movements are trend indicators, strength indicators, volatility indicators, and cycle indicators.
Below is a list and a brief description of some of the most commonly used indicators.
Average Directional Movement Index (ADX) – this indicator helps to determine if the market is moving in any direction and how strong this trend is. If the trend value is greater than 25, the trend is considered stronger.
Moving Average Convergence/Divergence (MACD) – shows the relationship between moving averages and allows you to determine the momentum of the market. Every time the MACD crosses the signal line, it is considered a strong market.
Stochastic oscillator. Compare the closing price with the price range over a certain period of time to determine the strengths and weaknesses of the market. If the Stochastic Oscillator exceeds 80, the currency is considered overbought. However, if the probability is less than 20, the coin is considered unsold.
The Relative Strength Index (RSI) is a 1 to 100 scale for comparing highs and lows over time. An RSI above 70 is considered overbought and below 30 is considered oversold.
A moving average is created by comparing the average price of one period with the average price of another period.
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