How to Read Forex Charts, And Make Sense Of Popular Indicators

 

image of a trading chart explaining how to read forex charts

Trading charts are one of the most essential tools that speculators use. In order to trade markets successfully, it is critical that you know what a chart is, and how to read it.

Below you will learn how to read Forex charts so that you can use them to assist your trading.

An Overview of Forex Charts

Simply put, a Forex chart graphically depicts the exchange rate between currencies over a given time period. Through analysis of these charts Technical traders can make predictions about the future movements of the currencies they want to trade. I underline, it is very common among Technical traders the use of charts and chart patterns as the only source of their trading decisions.

Types of Forex Charts

There is not a single type of Forex chart, that can give you enough information in fact, there are many different types of charts that are unique in their own way.

Different types of charts can be used to better depict specific trading data and are more appropriate for certain trading strategies. Let’s get familiar with types of charts that exist out there:

* Candlestick charts

* Bar charts

* Line charts

* Heiken Ashi charts

* Renko charts

As we can see, there are many types of Forex charts, however, of these the most used by Forex traders are the Candlestick and Bar charts.

These charts graphically display four pieces of information on each “candlestick” or a bar. This includes the open, close, high and low price points for the time period selected.

Now, out of these two, candlestick charts are voted to be the most useful in depicting the price information. By having an extra “fatness” in their bodies, it allows candlestick charts to display a large amount of information inside of a selected time period.

It appears that with candlesticks you can see, more clearly, how price has behaved during the specific time period.

women trying to understand how to read forex charts

How to Read Forex Charts: Understanding Timeframes on Forex Charts

Usually you will be able to control the timeframe displayed on a chart. Each point on a graph displays the trading data for that particular time period.

For example, if you were to select a one day trading period, then each point on the graph is the trading data from a one day period. If you were to instead select one minute, then each trading period would represent one minute of trading data. With most charting software you can select data from time periods of as little as seconds up to thirty days.

Also, see: How To Make Sense Of a Global Macro Hedge Fund?

How to Read Forex Charts: Using Indicators As A Guide

Reading a chart requires that you are able to interpret the data that is being presented.

To make that task easier traders use what are called indicators. Indicators act as a type of visual guide of how the currency pair has been moving. Using indicators can determine which way a currency appears to be trending. There are a number of different types of indicators with some of the most popular including:

Moving Average Lines, Relative Strength Index, Bollinger Bands, Moving Average Convergence Divergence (MACD) and  Stochastic.

Moving Average Lines are one of the simplest and, most commonly used indicators.

In order to determine the moving average you take the total of all the closing prices and divide this by the number of periods. Using a moving average you can remove the variance from your chart giving you a smoothed out picture of the overall price trend.

Most popular among the Institutional traders are 20; 50; 200-period moving averages.

The relative strength index (RSI) gives an indication of both the overall direction of prices and their velocity. RSI works by comparing any downward movements in the price to upward movements over a set period of time. Typically fourteen periods are used when measuring using RSI.

Bollinger bands are another very popular type of indicator. These measure the standard deviation of price movements around a moving average. When there is a lower amount of price volatility the bands will contract. When there is a large amount of volatility the bands expand.

MACD is actually a very practical indicator, and it does exactly what the name implies; It measures the relationship between two Exponential Moving Averages.

By far, the most commonly used settings are 12 and 26 periods along with the signal line of 9 periods. Usually, it is one of the first oscillating indicators that traders will apply to their chart, maybe with the exception of Stochastic, which we cover later on.

Despite its popularity, as being a versatile tool, MACD does not work all the time, which is something that can be noted right about every indicator that is based on past price information.

Stochastic is another very widely used indicator. It is a simple momentum oscillator that was developed by George Lane in the late 1950’s.

Being a momentum oscillator, Stochastic indicator can help to determine when a currency pair is oversold, or overbought.

However, I will mention it again; stochastic signals do not work all the time. Currency, as well as any other trading instrument, can stay overbought, or oversold for lengthy periods of time.

In our opinion, the true strength of the indicator comes from its momentum properties. Meaning, the momentum, the speed of any trading asset changes before the price changes itself. Hence, the stochastic oscillator can be used to foresee reversals when the indicator paints bullish or bearish divergences.

image of tools representing the subject on how to read forex charts

Conclusion

Charts are merely tools to help guide your trading.

As a tool they are only as effective as your ability to use them.

Invest time into understanding what the different types of charts and indicators are, and how they can be used in your trading.

You’ll be surprised to find out in how many ways the charts could help to interpret market intentions. Used correctly charts can be one of the most effective ways of improving your trading.

 

What trading tools are you using to improve your trading?

Please let us know by commenting below…

How To Make Sense Of a Global Macro Hedge Fund?

Tall buildings that represent global macro hedge fund.

A Global Macro Hedge Fund can best be identified through the use of funds in active management, in attempts to profit from broad market fluctuations resulting from Economic or political events.

Let’s break down the Global Macro Hedge Fund, as it consists of two meanings; Global Macro as a strategy, and Fund as a partnership.

Below, we get to see both of which build up its meaning.

Simply put, Global Macro is an investment strategy that seeks to make profits from the prediction and interpretation of large-scale economic and political events.

 A very memorable example of what is now recognized as a Global Macro strategy was, when George Soros shorted (sold) the British Pound in 1992, just couple months before, known now, as the “Black Wednesday.”

Newspaper stand, on "Black Wednesday."

While a Hedge Fund, on the other hand, is an investment partnership between a fund manager, often known as the general partner and the hedge fund investor, often identified as the limited partner; with the sole purpose of maximizing returns.

Global Macro Hedge Funds came to being as investors sought to make money regardless of rising or falling currencies, commodities, equities or futures markets.

The term “hedge fund” comes from risk hedging techniques that these entities were initiating on their existing positions, both, long and short.

Nowadays the types and nature of the hedging tactics enhanced, as did the various types of investment assets.

It is safe to say,  modern-day hedge funds participate in a diverse range of markets.

They employ a wide range of trading instruments, robust strategies, and sophisticated risk management techniques.

Note:

Hedge funds are commonly distinct from mutual funds, due to the fact that their leverage is not capped by the regulators. Furthermore, modern hedge funds are unique from private equity funds, given that, the greater number of these funds allocate their capital in comparatively liquid assets.

 

Here is a small list of most successful Fund Managers:

 

Global Macro Hedge Fund founder Ray Dalio of Bridgewater Associates.

Ray Dalio – (Bridgewater Associates)

 

Global Macro Hedge Fund founder George Soros of Quantum Group of Funds.

                                        George Soros – (Quantum Group of Funds)

 

Global Macro Hedge Fund founder John Paulson of Paulson & Co.

John Paulson – (Paulson & Co.)

 

Global Macro Hedge Fund founder Paul Tudor Jones II of Tudor Investment Corporation.

                                 Paul Tudor Jones II – (Tudor Investment Corporation)   

 

Global Macro Hedge Fund founder Bill Ackman of Pershing Square Capital Management.

Bill Ackman – (Pershing Square Capital Management)

 

Global Macro Hedge Fund founder Paul Singer of Elliott Management Corporation.

                                      Paul Singer – (Elliott Management Corporation)

 

Here is the link to TipRanks.com to track Top 25 Hedge Fund Managers

Note: The list has been compiled in no particular order, however the Bridgewater Associates, is considered to be the world’s largest hedge fund firm with more than $150 billion assets under management.

 

 Types of Global Macro Strategies

 Image of a huddle in relation to a global macro hedge fund strategy. A Global Macro Strategy is a set of approaches that bases its holdings, whether short or long positions in; equity, fixed income, futures and currency markets. The decisions to buy or sell the assets are based on political and economic views of various countries. There are three types of Global Macro Strategies.

Coming first we have the Discretionary Macro strategy; it deploys directional positions of an asset, to express a positive or negative view on a market.

Secondly, we have a Commodity Trading Advisor (CTA) or Managed Future macro strategy; Similar to the Discretionary approach, but with different methodology. CTA’s make use of price-based and trend-following algorithms in trading.

Lastly, we have the Systematic Macro strategy; it’s a hybrid approach that makes use of both discretionary and CTA macro strategies in trading. The systematic global macro uses fundamental analysis analogous to that of discretionary macro, but with a systematic algorithm based approach of the CTA traders.

Be sure to also read:

Simple Logistics To Be Aware: Forex Fundamental Analysis

Macro Trading FOREX

Global Macro Hedge Fund; the Pros and Cons

 Boy in a glasses is learning all about the global macro hedge fund strategies.

Global Macro Hedge Funds offer varying incentives, for one we have; the investors’ exposure to an aggressive investment strategy. The complexity of the tools used is all at the disposal of the investors. These strategies are deployed in nurturance of aggressive investment strategies, all with one goal; being able to yield more returns despite market fluctuations in any given period.

Secondly, Global Macro Hedge funds feature more stable gains. Through the various Global Macro Strategies, each one of them is designed and tailored for ensuring returns through expert analysis and forecasting of market changes globally. Predictions of which quite generally create attractive investment opportunities, thus huge returns.

Thirdly, hedge funds cannot be advertised to the general public and, as such, are made available to certain sophisticated or accredited individuals. Meaning, you have to meet certain entry level requirements just to get your foot in with some of these Institutions.

 As a matter of fact, in one of his interviews, Ray Dalio mentions that back in days you wouldn’t be able to do business with his Fund if you had less than 500 million dollars as an investment capital.

They also operate with greater flexibility than mutual funds and other investment funds. Most of them prefer to operate without direct regulatory oversight by bypassing licensing requirements applicable to investment companies.

As mentioned, a Global Macro Hedge Fund features extensive market knowledge, impeccable risk management techniques, and expertise in a particular asset class. That is, probably why, hedge fund managers are handsomely rewarded for their knowledge in financial investments.

However, much as the advantages sound alluring, there are also as many disadvantages of which they have. The first, being that Global Macro Hedge Funds face critics heavily for their significant investment fees. Investors are charged a performance fee to motivate the managers, as well as a management fee.

Secondly, we get to see that with enormous leverage, that is, the amount invested, also come massive losses. This also explains why some hedge funds end up in a bankruptcy.

A global macro hedge fund manager is walking towards his investment clients.

 

Conclusion

Global Macro Hedge Funds can prove to be a complicated investment to pursue, as they are difficult to comprehend. This is partly due to the complex strategies employed, as well as, bad publicity by the media.

The truth is, hedge funds at times meet all expectations from attractive returns and performance, and besides the down times some have pretty stable returns. With the right education, familiarization, and evaluation, there is a global macro hedge fund that fits the demands of every investor.

However, with all that said, as is with everything else in life, caution is advised. As much, as the advantages are attractive, the risk poses much of a threat, and thus investing in a Global Macro Hedge Fund should not be taken lightly.

 

What do You Think Of  Hedge Funds?

Are they worth their salt…

Are Their Performance & Management Fees justifiable…

Please leave your comment below, and let us know.

 

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