There are 2 types of Forex analysis:

1. Fundamental: It looks at the various factors affecting the economy of a nation. Generally speaking, the value of a nation’s currency is determined by the health of its economy.
2. Technical: It uses charts to look at and analyze currency price movements. In doing so, it helps Forex traders identify trends, which can often reveal profitable trading opportunities.

To one degree or another, most successful traders utilize both types of analysis.

There are 3 types of Forex charts:

1. Line charts: Basic charts, which indicate closing price points.
2. Bar charts: In addition to closing price points, they show opening price points and high and low price points.
3. Candlestick charts: In addition to the information shown in line charts and bar charts, candlestick charts clearly show the range between opening and closing prices and they are visually and structurally easier to read and interpret.

The next lesson is Introduction to Japanese Candlesticks

It is simple: Forex traders depend on charts. So it is important that you become familiar with them.

The three most commonly used types of charts are:

1. Line charts
2. Bar charts
3. Candlestick charts

Line Charts

A line chart shows us a series of closing prices, which are connected by lines. Follow the lines and you will see the price movements of a currency pair at certain time intervals over a defined period of time.

While line charts are very simple to understand, they are not used as often as other types of charts because they do not show enough information for traders to make good trading decisions. The problem is not what a line chart shows, but rather what it does not show. You will soon learn that other types of charts include much more information and are, therefore, much more useful. Nevertheless, the line chart is included here so you know what they are.

Below is an example of a typical line chart:

Bar Charts

Bar charts show both closing and opening prices and the highs and lows of a currency pair at certain time intervals over a defined period of time. The lowest traded price for the time period is indicated by the bottom-most point on the vertical bar and the highest traded price is indicated by the top-most point on the vertical bar.

The small horizontal line (a “hash”) on the left side of the vertical bar indicates the opening price and the hash on the right side of the vertical bar indicates the closing price. So you can see that a bar chart shows a currency pair’s overall trading range within the period of time encompassed by the chart.

Below is an example of a typical bar chart:

What, exactly, is a “bar”?

The term “bar” as used in Forex charting is a line that represents one segment of time. It can represent one day, one week, or one hour, depending on the intervals of time of the particular chart you are looking at. So when you are looking at a chart, be sure to know what time frame it is referencing.

Below, is an example of a price bar:

Here is how it works:

• OPEN (The opening price) is indicated by the short horizontal bar on the left.
• HIGH (The highest price of the time period) is indicated by the top-most point of the vertical line.
• LOW (The lowest price of the time period) is indicated by the bottom-most point of the vertical line.
• CLOSE (The closing price) is indicated by the short horizontal bar on the right.

Candlestick Charts

Candlestick charts are similar to bar charts but with more information. They are also created in either black and white or multi-color.

In addition to showing the high-to-low range of the currency, a candlestick chart also has a larger block in the middle, which indicates the range between the opening and closing prices. Even more, typically, when the block in the middle is filled in or colored in, it means that the currency closed at a lower price than it opened.

You will see in the example below that the block on the left is white (or “hollow”) and the block on the right is black (or “filled in”).

• The block on the left is white (or hollow) because the currency closed at a higher price than it opened.
• The block on the right is black (or it could be colored) because the currency closed at a lower price than it opened.

Below is an example of black and white candlestick bars:

Below, is an example of a color version of the same candlestick bars:

Green replaces the white (hollow) and red replaces the black. In all other respects it is the same. Some traders prefer the color bars because the color makes it easier and faster to read or identify the trends and possible reversal points.

Below is an example of a candlestick chart:

Candlestick charts as with other charts are visual aids. However, candlestick charts have the following advantages:

• They are easy to interpret, both visually and structurally.
• As you will learn later, they have unique names, which make it easier to remember what the various patterns mean.
• They make it easier to identify such things as market turning points (a reversal from an uptrend to a downtrend and vice-versa)

Again, you can learn more about candlestick charts and charting in general in other training articles here at BestForexStrategies.com.

The next lesson is Review of Forex Analysis And Forex Charts.

Forex trading is based on Forex analysis.

There are two types of Forex analysis:

1. Fundamental analysis
2. Technical analysis.

Fundamental Analysis

Fundamental analysis is used to determine the health of a nation’s economy at a particular moment in time. Fundamental analysis considers the economic, social, and political forces that affect a nation’s overall economic health. Since the value of a nation’s currency is a measure of the health of that nation’s economy, fundamental analysis can be important to a Forex trader.

Forex traders use economic news sources to gather information about the various factors that impact the economies of the nations whose currencies in which they are interested. Certain news events affect currency prices more than others and you can (and should) learn more about which ones they are, later.

Technical Analysis

Technical analysis is about the study of price movement. Knowing which way prices are moving and whether there is a pattern or a trend in the movements is very important information to have in Forex trading. Forex traders use various kinds of charts to identify and analyze the price movements of currencies. They use this information to find potentially good trading opportunities.

Which type of Forex analysis is better?

The short answer is, neither. They are equally worthy and important. Having said that; while many traders swear by one or the other, many, if not most traders, also use both to a greater or lesser degree. Considering everything, your trading skills can only be enhanced with the knowledge and application of both. If you choose to concentrate more on the fundamentals it would be a good practice to also pay some attention to the technicals – and vice versa. In fact, you could very easily miss something important if you strictly limit your analysis to one or the other and expose yourself to an otherwise avoidable loss.

The bottom line

The more proficient you are in both Fundamental Analysis and Technical Analysis, the better off you will be. The most consistently successful Forex traders are those who have found a comfortable balance between the two types of Forex analysis.

The next lesson is Forex Charts.