Analyzing Forex History Charts
The foreign exchange or forex market has emerged to be the largest financial market in the world participated not only by commercial banks, multinational corporations and central banks but also by private investors and other financial institutions. Unlike other financial markets, the forex market is considered an over-the-counter (OTC) or interbank market since it does not have a physical location. Trading in the forex market occurs 24 hours a day since major forex trading centers all over the world operate at different time zones. So, when one forex trading center closes, another center somewhere else in the world begin its sessions. This allows traders to initiate transactions wherever and whenever it is convenient to them. It is necessary for these people to make the right buy/sell decisions in order to obtain profits. Forecast methods have been developed to predict trends in currency trading. Forex history charts are also studied for this purpose.
Forex history charts are subjected to two basic methods in forecasting forex namely, technical analysis and fundamental analysis. The former differs from the latter as it focuses on what actually happened in the forex market rather than in what should happen. Forex history charts are then created based on relevant forex data like price of the financial instruments and trading volume. These charts are based on market movement that is caused or affected by price. There are five categories in the technical analysis theory and these are indicators, number theory, waves, gaps, and trends.
The relative strength index (RSI) and stochastic oscillator are two of the most common indicators used in technical analysis of forex history charts. RSI is defined as the ratio of up-moves and down-moves and its average or index is expressed in a range from 1 to 100. An RSI that is greater than 70 is an indicator that a financial instrument is overbought which means that prices have increased more than what was expected by the market. An RSI that is 30 or less, on the other hand, is an indicator that a financial instrument is oversold or that prices have fallen more than what the market expected. The stochastic oscillator is also used to indicate whether an instrument is overbought or oversold and is expressed on a scale of 0 to 100%. In terms of number theory, two theories are commonly used in technical analysis and these are the Fibonacci numbers and the Gann numbers. The Fibonacci number sequence is constructed by obtaining the sum of the two previous numbers in the sequence. Gann numbers, on the other hand, developed by W.D. Gann, is a study of forex history charts using the relationship between price and time. The method of Gann is not yet distinctly understood however, in essence, Gann used angles in the charts to predict when future forex trends will occur.
In terms of waves, the most common tool used in technical analysis is the Elliot wave theory which is based on recurring wave patterns and the Fibonacci number sequence. Moreover, gaps are also used as tools in analyzing forex history charts. These are the spaces on the bar charts where no trading occurred. Up gaps and down gaps can be determined through this method. Lastly, to determine and indicate currency trends, the Coppock Curve and the Directional Movement Indicator (DMI) are used.
|
