How to Read a CFDs Chart
When it comes to trading the cfd market the cfds chart is the basic trading tool used by all traders. The cfd chart will show information about a cfd instrument - the cfds chart will show the general direction of cfd prices, the chart will also explain the current price of a cfds and the chart will also explain the historical movement of chart cfd prices.
Traders will use these charts to determine where to place trades. From the chart the trader will analyze the cfd market movements using technical indicators so as to determine the direction of the market and determine the trade to open.
Traders must therefore learn how to use cfd charts before they can start transacting in the online cfd market.
The following are the various things that a trader will need to know about cfd trading charts.
Types of Charts
There are three types of cfd trading charts
Line Chart - this charting method draws a continuous line that connects the closing cfd prices. For example if a trader is using the 5 minutes chart then this line chart will draw a continuous line that connects closing cfd price of the cfd market after every 5 minutes.
Bar Chart –This chart use bars to represent cfd price movements, and plots OHCL –Opening cfd price, High, Low, and Closing cfd price for that period, for example if the period used is 5 minutes, the bar will represent the cfd price data and the OHCL points for the 5 minutes.
Candle Stick Charts –The are the most popular chart types as they are the most visually appealing and they represent the cfd price movements in an easily identifiable way which clearly show when a market moves up or when it moves down using different colors to differentiate the direction. These candlestick chart look like a candle and they have a body that resembles the wax part of a candle and an upper and a lower poking line that resembles the wick of a candle.
CFDs Chart Periods –Chart Time Frames
A cfd chart will draw charts based on different time periods - these are 1 minute, 5 minute, 15 minute, 1 hour, 4 hour, 1 day, 1week and 1 month. The period used to draw chart data is also referred to as a cfd chart timeframe, for example the 5 minute chart period is commonly referred to as the 5 minute chart by trader. This 5 minute chart timeframe will represent data for the five minutes of trading, after those five minutes another set of data will be used to draw another chart representation. For example if a trader is using candles chart, the data of one candle-stick will draw data of that five minutes, after those five minute another candle will be drawn using cfd price data of the next five minutes - when these candles are combined they then make a graph representation that shows the general direction of cfd prices commonly known as the trend. CFD traders can then use this information to make trading decisions.
Because the most commonly used charts are candlesticks charts we shall discuss how to read cfd charts specifically candlestick charts.
How to Use Candlestick Charts
The candlestick charts uses candlestick that have different colors to represent different cfd price moves, blue candlesticks show cfd prices closed higher than they opened, red candlesticks show cfd prices closed lower than they opened. This color representation is then used by traders to determine when price has moved up or down.
The candle sticks also show OHCL:
O - Opening CFD Price
H - Highest CFD Price
C - Closing CFD Price
L - Lowest CFD Price
These cfd price points are represented using a formation which looks like a candlestick, the distance between the opening cfd price and closing cfd price is represented by what is referred to as body, this part resembles the wax part of a candle. High cfd price is represented by a poking line protruding upward, this line resembles the wick of a candlestick, the low cfd price is represented by a poking line protruding downward & it also looks like a candle wick facing down.
Candlesticks
A trader can also add a cfd indicator on the cfds chart so that they can interpret the chart market using these indicators. Traders will need to place indicators on the cfd so that they can get additional information about a cfd trend & therefore be in a better position to make a more informed trading decision. These technical indicators can be used to predict the likely market direction that the cfd market is likely to keep moving in whether up or down.
A trader can use indicators such as the moving averages and Bollinger to determine the trend. CFD traders can also use other indicators such as the RSI and stochastic oscillators to determine when to open trades.
CFD Trading Trend lines are also used to determine the direction of the candlestick charts trends and these lines can drawn on the charts to show this direction. A upward trend will be shown by a cfd trend line is moving up while a cfd trend that is moving down will b e shown a cfd trend-line that is moving downward.
To learn how to draw a cfd trend line & how to trade using technical analysis a trader can learn about the trend line lesson under the learn cfd lessons section of this website, for indicators a trader can learn about cfd indicators & their technical analysis on the cfd indicators section of this website.
