Traders at all levels use charts to analyse the markets direction and decide whether or not to place a trade.

The most common and popular types of charts that are used are in today’s trading are;

1. Line charts
2. Bar charts
3. Candlestick charts

 

Line Chart 

 

Bar Chart

 

Candlestick Chart

 

 

All three charts shown above are of the same market and time frame.

As you can see, the price action picture gets clearer as you move down to the candlestick charts. These charts show us the best information as to what price is doing even to an untrained eye. 

 

Line Chart

A line chart is the simplest chart and is formed by drawing a line from one closing price to the next.

When all of the closing prices are added to create the line we can see a general picture of where price is moving. This form of chart is simple, but does leave some crucial elements out.

 

Bar Chart

A bar chart is another step forward from the line chart with more information added.

A bar chart shows you the opening and closing prices along with the particular time frames highs and lows.

As you can see from the image below; the bar shows where price opened on the left of the bar, how low it moved down, how high it traded up to and where it closed.

Along with the candlestick, a ‘bar’ is one time period of information. This can be any time period you choose, for example; the 15 minute chart or daily chart.

 

Candlestick Chart

Candlestick or Japanese candlestick charts are what we use here at Forex School Online and what you will find in all of our graphics.

The candlestick includes the same information as the bar chart; the high, low, open and close, but it is easier to quickly read and decipher because of the candles body.

Below is an example of a candlestick. You are able to change and choose the colors to how you prefer them. In the example below; blue indicates price closed higher and red indicates price closed lower. The ‘wicks’ of the candles show how high and low price traded during the session.

 

Correct New York Close Time Charts

The unofficial Forex daily close is 5pm New York. 

With this in mind it is very important that you use the charts that reflect these timings. The best and most accurate charts to use are New York close 5 Day charts. This means that there are 5 candles per week and the daily candle closes at the end of the New York session.

Having your charts set up this way means you will get a true indication of the market with the candle opening with the Asian session and closing with the US session close.

I highly advise using the industry standard MT4. A link to the correct free New York close demo charts can be found at New York Close 5 day MT4 Charts.

A market flash crash is a spectacular and aggressive sell off in prices of an asset or security.

Market flash crashes are quick and can often happen in seconds to minutes and will often be followed by a similarly quick rebound in prices.

There have been some well-known and famous flash crashes in recent times in stock markets, Forex markets and cryptocurrencies.

 

What Causes a Flash Crash?

There are a wide variety of reasons why the markets experience quick flash crashes. With program trading and computer software being used to trade the markets more than ever, a flash crash can happen at any time if there is a glitch.

Some of the other major causes of a flash crash are;

 

Fat Finger and Human Error

Have you ever tried to search for something on Google and hit the wrong key?

This is basically what a ‘fat finger’ error is. For example; instead of one million shares, a trader tries to buy one billion. Big difference.

Whilst these errors are often not serious and in today’s age there are many fail-safes in place, they have in the past caused some gigantic accidental orders to be passed through.

 

High Frequency Trading

With high frequency trading becoming more and more common in the financial market, errors caused by computers and high frequency trading are also becoming more common.

There will always be a risk attached to letting a computer run a strategy where it is making a high frequency of trades in an extremely small amount of time.

If something is to glitch or experience an error, then the program could sell off positions in the market extremely quickly.

 

Computer or Software Glitching

As with high frequency trading, any corruption in the data could cause a glitch and a flash crash.

This has happened in the past with automated trading systems and will likely happen again.

 

Recent Examples of a Flash Crash

 

Flash Crash 2010

On May 6, 2010 the Dow Jones was slashed by more than 1,000 points in minutes in a flash crash.

Although a large majority of this crash was clawed back by the day’s end, initially over one trillion dollars was erased from the markets.

The cause of the 2015 flash crash turned out to be a futures trader named Navinder Sarao who attempted to spoof the market by rapidly buying and selling futures contracts through the CME – Chicago Mercantile Exchange

 

S&P 500 Flash Crash 2015

On August 24, 2015 the S&P 500 opened and crashed 5% within 15 minutes.

As with a lot of flash crashes, these huge losses were mostly regained through the trading session, but surprisingly at the end of the session prices sold off lower again to finish with a 3.6% decline for the day.

The main reasons for the 2015 flash crash were a bearish sentiment leading into the 24th of August and large selling in other markets.

At the start of the week (before the US markets opened) the Chinese Shanghai Composite experienced a slide of 8.5%. This in turn fueled the bearish sentiment in the US with many cancelling any orders to buy before the market opened and instead looked to sell.

With a very thin market and most looking to sell, the market crashed.

 

Ethereum Flash Crash 2017

In 2017 Ethereum experienced an incredible flash crash.

Whilst trading at a price of $317.81 price was crunched to as low as 10 cents in minutes. Price has since regained these losses. This flash crash was originally thought to be market manipulation.

After investigations into the cause of the gigantic crash, it was proven to be a multi million dollar sell order that triggered an avalanche of stop loss orders to be hit. As price capitulated, traders who were trading on margin were also taken out seeing the price fall even more quickly.

 

Flash Crash 2018

In February of 2018 the Dow Jones crashed almost 1,600 points, ending the day down 1,179 points, the biggest session points loss in its history.

Whilst that is the biggest points collapse in the Dow’s history, it is far from the biggest sell off it has seen in percentage and one of the reasons that price had the 2018 flash crash.

This crash does not even register inside the top 100 largest daily falls for percentage.

Leading up to the flash crash the market had been on fire making record high after record high. As no market goes higher or lower forever, a correction was always due at some point.

 

Aussie Dollar Flash Crash 2019

In January of 2019 the AUDUSD and USDJPY experienced a sharp flash crash with more than 4% wiped from their prices in moments.

The Aussie Dollar collapsed more than three percent against the US Dollar and also experienced a large fall against the Yen.

Whilst this crash was severe, so was the correction with prices quickly snapping back to regain their losses creating a huge spike.

 

Summary

In this post just a few recent examples of flash crashes are listed, but there are a lot more.

When we take into account human trading errors and the invention and popularization of computers and algorithmic trading, there is a high chance that another flash crash will be just around the corner.

Make sure you understand the markets you are trading, you use a broker you trust, always trade with a stop loss and are prepared for what the market may throw at you.

 

The Forex broker you trade with is incredibly important. You need to know that you can safely deposit and withdraw your own money, that your funds are segregated from the brokers own funds and that the broker you trade with is regulated.

Make sure you are not getting ripped off and you know about these Forex broker scams.

 

No Regulation

This is becoming more and more common. As the big dogs of the financial regulation world begin cracking down on fraud, scams, leverage and a myriad of other issues they see, many brokers are taking themselves offshore.

This is an issue for you as the trader. If you trade with an unregulated broker you must be prepared for what could happen.

You will have no authority to lodge a complaint with. You will have no authority to investigate wrongdoings and if the broker does not want to play ball, they don’t even have to have a formal dispute process. Basically you are at their mercy.

Fully regulated brokers have a far harder time of it. They have minimum capital requirements. They must have a formal dispute process in place and of course they can have their licence stripped as has been happening more frequently of late with ASIC recently freezing broker funds and stripping licenses.

 

Fake Reviews

This is a tactic not just used by scammy brokers, but Forex scammers in general.

I am sure you know of blatantly scammy websites that have amazing reviews on sites like “Trust” pilot.

Reviews can be entered on these sites by anyone and scammers will pay a few dollars to have a lot of fake reviews submitted.

 

Be Wary of Sites That Bash Every Broker

I am sure you also know of sites that bash every broker and it seems that every broker has a terrible rating.

There are a few main reasons for this; the first is that when a trader loses they want someone to blame. It is a lot easier to accept losing money if it someone else fault.

For example; a trader enters a trade during peak news period and finds the spreads go far wider. They don’t really understand why, they lose the trade and blame the broker. 

Another example is not correctly understanding overnight costs and rollover and getting upset when their account loses money they were not expecting.

The other reason is that people in general are far, far more likely to get steamed up and write something angry than to write a positive comment.

Most people don’t wake up and think; ‘hey I am going to find a site and make a positive review today’.

However; if they feel slightly aggrieved and they can post anonymously as a guest, then they will go out of their way to post an angry comment.

The other major reason is similar to the fake positive reviews, there are a lot of fake negative reviews. What is the easiest way to make your competition look bad? Write a dodgy review.

 

Sneaky Tactics

Find it super easy to deposit your money and make trades and then when it comes time to make a withdrawal you hit a brick wall?

All of a sudden the 10 different forms of identification you have sent in are rejected, your email requests are taking longer and longer to get replies and nothing is happening.

This can be frustrating and as discussed above, if with an unregulated broker, not much you can do.

The other common tactic brokers will use is that they will make it very easy and cheap to deposit your money, but when it comes time to withdraw you find there is a fee for processing the withdrawal and then a fee with the provider that is crazy high.

After you see the transfer has been processed some of these unscrupulous brokers will then hold your money for 45 days with a load of different excuses.

Having a stable broker that is fast with not just deposits, but also withdrawals is crucial.

 

Market Makers With Their Own Platforms

If you have ever traded with a market maker that uses their own platform you will know that some strange things can happen from time to time. Of course not all market makers with their own platform are shady, but some will pull some very tricky stunts.

A common example of this is that even when the market is quiet, you have a great internet connection on a solid computer, the platform will mysteriously begin freezing. You will not be able to manage your trades and often find you have been stopped out when the connection is restored.

 

Dodgy Bonuses

This is a tactic that sucks a lot of traders into making deposits and trading more than they probably should.

These bonuses include things like free gifts at the time of signup and deposit, or extra capital depending on how much money you deposit.

What often frustrates traders is that these bonuses are designed to get you to trade more.

An example of this is the classic signup bonus. You signup, make a deposit and are given 100%+ extra capital.

The catch? Whilst you can trade with that extra capital, you cannot withdraw any part of it and can only begin withdrawing the profits once you have traded a certain amount of lots which is normally an extortionate amount. The other trick brokers will use with this bonus is adding into their fine print a set time period you must trade all of these lots to access any of the bonus in real cash.

 

Terrible Support

This is something that is often hard to spot especially for new traders. New traders often don’t know what support they should expect and what knowledge their Forex broker support team should have.

It is often only when a trader needs real help and support that they can find their broker is severely lacking.

Some brokers are excellent. They have great training programs and you can jump on a live chat and get all of your questions answered.

Other brokers have support teams that don’t even know what charts they offer or the time frames they supply. 

 

Lastly

It can be hard to know the tricks that sneaky brokers are going to use to part you with your money, but hopefully this lesson helps you use a broker you trust and can trade safely with.

To find out more about who the best regulated brokers are with the best charts, checkout; Recommended Forex Brokers