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