Charting is really a sub-discipline of technical analysis – however it’s a very big one as nearly every Forex trader will utilize, to some extent, price charts when making trading decisions. The simplicity of charts is their main strength. They convey a huge amount of relevant information very quickly.
They give a graphical representation of what is going on, and what has happened in a market (see Figure 1). Anyone can look at a price chart, and make a prediction about what the price is going to do next. Chartists look for patterns in price behavior to predict how to trade. The analysis used by experienced traders goes beyond simple “eyeballing” of a chart. A number of specialized techniques and indicators have been developed over the years and are useful under different scenarios.
The most widely used are:
- Support and resistance lines
- Trends and ranges
- Moving averages, Bollinger bands
- Oscillators: MACD,RSI, Stochastic Oscillator
- Pattern based: Candles, Elliott waves, Fibonacci
Most traders use a combination of these indicators.