Trade Forex Trading

How to Read a Chart

Every trader relies on the chart. It shows you everything about a currency pair - the overall direction, the current exchange rate, and the price history. Basically, the chart is your main tool for reading the market.

Traders use charts to decide trade entries. They read market moves with indicators. This helps spot price direction and pick trades.

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

Key facts every forex trader should learn about price charts.

Types of Charts

There are 3 types of charts

Line Chart, which plots a continuous line that connects the closing values, is the methodology behind this charting technique. As an illustration, if one is using the 5 Minutes chart, this line chart will represent a continuous line that connects the market's closing prices every five 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 upward or when it moves downwards 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 frame periods - these are 1 minute, 5 minute, 15 minutes, 1 hour, 4 hour, 1 day, 1 week 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. E.g. if one 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 5 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

Candlestick charts employ distinctively colored candles to visually represent price movements: blue candlesticks indicate that the closing price was higher than the opening price, whereas red candlesticks signify that the price closed lower than where it opened. This color coding is then utilized by traders as an immediate visual cue to determine the prevailing direction - upward or downward - of price movement.

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

You can add indicators to a chart for better market analysis. Set them up to gain more details on trends. This puts you in a stronger spot to choose trades. Indicators help spot if the market will keep going up or down.

Moving averages and Bollinger bands help spot trends. RSI and stochastic oscillators time entry points for trades.

Trendlines also help see where candle chart trends are going, and these lines can be put on the charts to show this direction. A trend that goes up will be shown by a line that is going up, while a trend that goes down will be shown by a line that is going downward.

To learn how to draw trendlines and trade based on technical analysis, visit the trendline lessons section of this website. To explore various indicators and their uses in trading strategies, check out the indicators section available online.

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