Forex trading has become very attractive to many investors and traders due to the potential for high profits. However, the market’s high volatility makes forex trading risky. The Saxo NL platform enables traders in the Netherlands to use technical analysis charts to mitigate risk.
Technical analysis involves studying the historical price actions and identifying opportunities in future price movements. Every forex trader must understand how to use these analysis tools to hedge against losses.
Interpreting technical analysis charts can be challenging for beginners. However, if you are a trader in the Netherlands, keep reading to understand the various technical analysis charts available on the Saxo NL.
Technical Analysis Charts You Can Use on Saxo NL
Technical analysis data is presented in three main types of charts: line charts, bar charts, and candlesticks. Netherland forex traders can use these charts to make informed decisions across several foreign exchange markets.
1. Line Charts
A line chart usually displays the closing prices of currency pairs. This chart links each closing price to the previous closing price, forming a continuous line that allows traders to follow.
Line charts provide a simplistic view of the market trend. They offer less information making it simple and easy to understand. Because of their simplicity, line charts are ideal for newspapers, web articles, and television.
Line charts reduce noise in a day’s trading by eliminating less critical times and only displaying the closing prices. However, expert traders opt for other types of charts that provide more information.
Pros of Line Charts
- Line charts display forex data in the simplest form and are ideal for beginners.
- Line charts present data in a holistic market overview by eliminating shifting points and non-critical data.
- Line charts assist in eliminating emotions in trading.
- This chart eliminates ‘paralysis by analysis, a term used in trading that describes a situation where too much information overwhelms a trader.
Cons of Line Charts
- Using only closing price information can give multiple signals leading to confusion.
- Line charts fail to provide enough price information for expert traders to monitor their strategies.
2. Bar Charts
Bar charts present HLOC prices, i.e., high, low, opening, and closing prices. The high and low prices create the vertical lines in a bar chart. The dash to the left and right of the bar represents the opening and closing prices, respectively.
Colors help traders understand the trend; a green bar closes up while a red bar closes down. Additionally, the bars indicate the market sentiment for that period to the trader. The market trend can either be bullish or bearish.
Pros of Bar Charts
- They provide more information, enabling traders to make more informed decisions.
- Bar charts enable traders to determine the range of trades. A range of trade is a strategy that involves identifying oversold and overbought currency pairs.
- Bar charts are ideal for analyzing a variety of financial instruments such as stocks, forex, commodities, and indices.
Cons of Bar Charts
- Bar charts have too much information that can lead to ‘paralysis by analysis’ in traders.
- Bar charts are less convenient in determining whether an asset’s value has risen or fallen.
3. Candlestick Charts
Candlestick charts also display HLOC prices, i.e., high, low, opening, and closing prices. The candlestick’s body displays the opening and closing prices while the wick displays the low and high prices.
The candlestick’s color depends on the platform’s settings. However, most platforms use red and green as the default colors. A green candlestick represents a bullish candle, meaning that the price closed higher. On the other hand, a red candlestick bar represents a bearish candle, indicating that the price closed lower.
Pros of Candlestick Charts
- Candlestick charts provide more information, yet they are easy to read and understand. They are, therefore, the most preferred charts in forex trading.
- Candlesticks are ideal for reading the market sentiment.
Cons of Candlestick Charts
- They provide too much information that can overwhelm a trader.
- Candlestick charts are easy to read and can result in false confidence among traders.
Technical analysis charts are essential tools in forex trading. These charts present information in a visual form, making it easy to read and understand. Therefore, forex traders using Saxo NL in the Netherlands must understand how to read these charts. Additionally, using a combination of the charts rather than a single one helps make better decisions.