Trade Forex Trading

How to Read a Chart

In trading the market the chart is the basic tool used by all traders. The chart will show information about a currency pair - the chart will show the general direction of prices, the chart also will show the current exchange rate of a currency pair & the chart will also show historical movement of the chart prices.

Traders will use these charts to figure out where to open trades. From the chart the trader will interpret market movements using indicators so as to determine the direction of the market price and determine the trade transaction to open.

Traders must therefore learn how to use charts before they can begin trading in the online trading market.

The following are the different things that a forex trader will need to know about charts.

Types of Charts

There are 3 types of charts

Line Chart - this charting techniques draws and plots a continuous line which connects the closing prices. For example if a trader is using the 5 minutes chart then this line chart will plot a continuous line that joins the closing prices of the market after every 5 minutes.

Bar Chart - This chart uses bars to display price moves, & plots O H C L - Opening price, High, Low, & Closing price for that period, for example if the period used is 5 minutes, the bar will represent the price data and the OHCL points for the 5 minutes.

Candle Charts - These are the most popular/liked chart types because they're 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 candle 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.

FX Chart Periods - Chart Time-frames

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

Because the most often used charts are candles charts we shall discuss how to read and study charts specifically candle charts.

How to Use Candlestick Charts

The candlestick charts uses candlestick that have different colour to represent different price moves, blue candlesticks show prices closed higher than where they opened, red candlesticks show prices closed lower than they opened. This color representation is then used by the traders to determine when the price has headed up or down.

The candlesticks also show O H C L:

O - Opening Price

H - Highest Price

C - Closing Price

L - Lowest Price

These price points are represented using a setup which looks like a candlestick, the distance between opening price & closing price is represented by what is referred to as the body, this part looks like the wax part of a candlestick. High price is represented by a poking and protruding line protruding up-ward, this line resembles and looks like the wick of a candlestick, the low price is represented by a poking and protruding line protruding downwards & it also resembles a candlestick wick facing down.

Analysis of Candles

One can also add a indicator on the chart so that they can analyze the chart market using these indicators. Traders will need to set indicators on the so that they can get additional/extra information about a market trend & thenceforth 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 heading in whether up/down.

One can use indicators like the moving averages and Bollinger to determine the trend. Traders also can use other indicators like the RSI and stochastic oscillators trading indicators to determine when to open trades.

Trendlines are also used to determine the direction of the candle charts trends and these lines can plotted on the charts to display this direction. A upwards trend will be revealed by a trend line is moving up while a trend that is moving down will b e shown a trendline which is heading downward.

To learn how to draw a trend line & how to trade using analysis a trader can learn about the trend-line lesson under the learn lessons section of this web site, for indicators a trader can learn about indicators & their trading analysis on the indicators section of this web site.

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