How Do You Interpret/Analyze Charts?

How Do I Trade Charts?

In forex - the chart is the basic tool used by the traders to trade the markets. The chart will show info about price movement - the chart will show the general direction of prices - oftenly referred to as trends or price trends. The chart will also show the current price and the historical movement of the chart prices.

Traders use these charts to identify where to place & open trades. From the chart the trader will interpret price movements using indicators so as to identify and determine the direction of the trend so as to determine the trade transaction to open - whether a buy or a sell trade.

Traders must know how to use charts before they can begin trading forex.

The following are the different aspects of charts that one will need to know about charts.

Types of Charts

There are 3 types of charts

Line Chart - this line chart technique draws and plots a continuous line that joins and connects the closing prices. For example if a fx trader is using 15 minute chart then this line chart will draw a continuous line that joins closing prices of the market after every 15 minutes.

Bar Chart - This bar chart use bars to illustrate price movements & draws OHCL - Opening price, High price, Low price, and Closing price for that chart time period, e.g. if the trading chart time period used is 15 minutes trading chart, the bar chart will represent the price data & the OHCL forex points for the `5 minutes chart.

Candlestick Charts - These candlesticks charts are the most popular/liked chart types because they're the most visually appealing charts and they represent the price movements in an easily identifiable way which clearly displays when prices move up or when prices move down using different colors to differentiate the direction of price movement. These candlesticks chart look like a candlestick and they have a body that resembles and looks like the wax part of a candle and an upper & a lower poking line that resembles and looks like the wick of a candlestick.

Chart Periods - Chart Time-frames

A chart will draw and plot charts based on different chart time frame periods - these are 1 minute trading chart, 5 minutes trading chart, 15 minutes trading chart, H1 chart, 4 H chart, 1 daily chart, 1week chart and 1 month chart. The chart period used to plot chart price data also is referred to as a chart time frame, e.g. the 15 minutes chart period is oftenly known as the 15 min chart by traders. This 15 minute chart time frame will represent price data for the 15 minutes of forex, after those 15 minute a new set of price information will be used to draw another chart representation. For examples if a trader is using candles chart, the price data of one candle will draw price data of that 15 minute, after those 15 minutes another candlestick will be plotted using price data of the next 15 minutes - when these candlesticks are combined they then make a forex graph/ chart representation that displays the general direction of prices often referred to as the trend. Traders then can use this chart information to make forex decisions.

The most often used charts are candlesticks charts.

How Do You Read Charts?

The candlestick charts use candlesticks which have different colors to represent the price move - blue candles show prices closed higher than they opened - red candles show prices closed lower than they opened. This candle color representation is then used by the traders to determine when the price has moved upward or downwards.

The candle 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 candle with wicks on both ends, the distance between opening price & closing price is represented by what is known as body of the candle - this part resembles the wax part of a candlestick. The high price is represented by a poking and protruding line protruding upwards - this line resembles the wick of a candle - the low price is represented by a poking and protruding line protruding downwards - this line resembles the wick candle facing down.

How Do I Interpret Charts? - How Do I Read Charts?

The Japanese candles patterns methods also have very many candles patterns that are used to trade the Markets. These patterns have different technical analysis & most common are:

Marubozu & Doji Candle Patterns

Spinning Tops Candle Patterns

Reversal Patterns Candles Patterns Candle Patterns

Inverted Hammer Candlestick Pattern & Shooting Star Candles Patterns

Piercing Line Candle Pattern & Dark Cloud Cover Candles Patterns

Morning Star Candles & Evening Star Candles Patterns