FOREX Charts, Bars, and Trading Spaces for Technical Traders

Assuming you're a technical trader, using news as your fundamental analysis component to gauge the long-term trend and the underpinnings of the short-term market.

The market -- as depicted in the price movement of a chart -- is the sum total of traders at all price level spaces and the complex interactions between them. A tug of war is occurring at each price level between buyers and sellers endeavoring to pull the market in one way or the other. Buyers wish to move prices up, obligating sellers to liquidate their positions by buying, driving prices even higher.

Sellers wish to move prices down, obligating buyers to liquidate their positions by selling, driving prices even lower. The tug of war is broadly represented by markets moving sideways, in a trading range, or a trading market. One side winning is represented by markets moving dominantly in one direction, a trend, or a trending market. See Figure below.

[caption id="attachment_13159" align="aligncenter" width="550"]The FOREX Tug of War The FOREX Tug of War[/caption]

This action is occurring at many price levels simultaneously. A chart time frame is the means by which technical traders zero in, or focus on, a particular level of this tug of war. Each vertical bar represents the range of prices from high to low, made over a specified time. The chart in Figure below also shows the opening price of that bar and the closing price of that bar with a small horizontal tick.

[caption id="attachment_13160" align="aligncenter" width="550"]Time Frames as Depicted by Chart Bars Time Frames as Depicted by Chart Bars[/caption]

All trading platforms allow the user to view any pair at a wide range of time frames. The most common are:

There is variance at each end of the spectrum. Below the 5-minute mark you can view a tick chart; above 1-day you can study 1-week or even 1-month bars. Some platforms allow you to create custom time frames. But those listed here are enough for now.

Tip: Think of each discrete time frame as a tug of war between buyers and sellers battling at that price level.

Tip: Markets do not know they have time frames. These are an artificial construct to help us dissect the price action at different levels. The perfect world would be a 5-minute chart on a 12-foot wide monitor.

A trending market at one level may be part of a trading market at a higher level. It is always relative to your focus, your frame of reference. See this in the two squared areas of the 15-minute bar chart (Figure below- Relativity of Markets on Different Time Frames -- 4-Hour) and 4-hour bar chart (Figure below- Relativity of Markets on Different Time Frames -- 15-Minute) of the EUR/USD.

[caption id="attachment_13161" align="aligncenter" width="550"]Relativity of Markets on Different Time Frames -- 4-Hour Relativity of Markets on Different Time Frames -- 4-Hour[/caption]

[caption id="attachment_13162" align="aligncenter" width="550"]Relativity of Markets on Different Time Frames -- 15-Minute Relativity of Markets on Different Time Frames -- 15-Minute[/caption]

Yes, it can be confusing! This is one reason the new trader wants to select a space, create a trading profile, and work it.

Tip: You will ultimately want to consider multiple time frames in your analysis. But not right now. Learn a method for analyzing a single time frame first, and then adapt it to analyzing multiple time frames.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

Posted in ...