How to Read Forex Charts

Forex charts can be presented in multiple different ways, from line charts and bar charts to candlestick charts. This section will run through what you need to know about each. If you use a trading chart, you can be called a technical trader.

how to read forex charts

You can change the color of your graph in Options as well as the type of graph by clicking on the Chart Types button above the Indicators button. If you cannot see the button, make sure it’s enabled through the Options menu. In this article, we discuss the different types of Forex charts and how to read them. Learning how to read Forex charts will help you progress greatly in your trading journey and prepare you for the more complex concepts lying ahead. Candlesticks are good at identifying market turning points – trend reversals from an uptrend to a downtrend or a downtrend to an uptrend.

With the line chart, you can get an overview of the movement in prices just like in the EUR/USD example below. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

How to read trading charts

Several indicators are there that can become part of an automated trading system. Of course, there can be different opinions and a long debate on distinct technical indicators. See what works best for you and use it for a long time to hone it.

However, no matter your trading method, you’ll need to know how to read a forex chart – there’s no escaping it. Luckily, we created Understanding Moving Average Indicators this detailed guide to help you get started. If you would like to buy a currency pair, you will be quoted at the Ask price.

Significant differences between the two lines would indicate volatility in the exchange rate for that particular pairing. The top and bottom lines of the candle itself display the opening and closing exchange rate for the pairing you’ve chosen. You know which one is the opening and which is the closing by looking at the coloration of the candle body. Then you’ll see lines extending from the top and bottom of the candle, giving rise to the name of the chart.

Now, let’s talk about the items and number we will need to understand and read while using a forex chart. Reading charts is fundamental for every trader, so each fx broker will provide you with a platform solution that is a trading station with charts and tools. Before being able to learn the art of reading charts, you should get one. Forex charts are everywhere, yet not all the graphs are the same.

The concept of chart patterns is premise on the idea that human behaviour does not alter quickly. Chart patterns illustrate the psychology of capital markets, assuming that they have succeeded in the past. Get started with Asia Forex Mentor’s proprietary forex trading course through the One Core Program or the Golden Eye Group. In the What is Stock ETF Golden Eye Group, Chew lets you into his mind and reveals how he trades weekly in the live market. Some patterns will indicate a bullish sentiment, and here is the most prominent example. A hammer is just the inverse of a shooting star—in other words, sellers pushed the price to a low during the day before sellers pushed it back up.

You can use momentum sensors, such as oscillators, to calculate the asset price’s speed or velocity. Instances of the most widely used dynamic metrics are MACD, Stochastic or RSI. The body colors vary from broker to broker but are usually green, indicating a price rise, or red, reflecting a price decline. OHLC price values consisting of an opening foot—facing left—a vertical line, and a closing foot—facing right. If a stock is oversold or over-purchase, it fails to sustain its course, which sometimes indicates a turnaround is inevitable. You can use momentum sensors, such as oscillators, to calculate the asset prices speed or velocity.

There are three main types of charts come forward when we talk about technical charts. They give certain information about technical charts, and they are also unique. For example, a white body can be used to show a rising or bullish candle, while a black body shows a falling candle.

What is a Forex Chart?

Many experienced traders use more advanced technical analysis to forecast price movements. Technical analysis involves studying chart patterns and formations to predict the future direction of markets price. One of the most popular types of charts used by professional forex traders is the point and figure chart. This allows them to filter exchange rate moves, identify clear support and resistance levels and even trade specific patterns.

how to read forex charts

Since you’re typically looking at a bigger picture with line charts, you may want to set a longer time period for your line chart. The maximum length of time you can set depends on the service you’re using to generate your chart. When you choose a currency pair, for example, EUR/USD, the chart you generate will show you how many US dollars you can buy for one Euro.

We’ll use real examples of various types of forex charts to break down how you can get the most value out of this essential trading resource. Other ways of analysis can allow you to determine when to take a trading position or leave a trade. Trend line metrics such as the moving average clearly help you determine how the market moves. Many Forex traders only use line charts when assessing long-term trends. Where some of the additional information may not be quite as relevant as it is when trading short-term patterns. We will start by knowing what the trading map is before we focus on trends and indicators.

Consequently, traders should generally consider selling positions over 70 and buying those under 30. Remember, buy them while they’re cheap and sell when they’re expensive. Another bad omen, the so-called shooting star, is indicated by a small candle body, large upper wick, and little to no lower wick. This means the candle body will appear near the bottom—a shooting star is also known as an inverted hammer for obvious reasons. It means neither buyers nor sellers were able to noticeably affect the price that day. Thus, the open, close, high, and low are nearly identical—you can’t turn a big profit while this is going on.

Bar Charts

If the value falls below 30, the asset is considered to be oversold, which means a buy signal. Similarly, if the RSI is beyond 70, the asset is considered to be in an overbought zone which is a sell signal. Bollinger bands are used to measure the volatility of the market.

  • The EUR/USD chart will show exactly how many dollars you could buy with one Euro.
  • The vertical height of the bar reflects the range between the high and the low price of the bar period.
  • A reversal is set at three boxes, and the price must change at least that much before switching from X to O or vice versa.
  • The tick chart has a red line that shows the offer side and a blue line to indicate the bid side of the market.
  • Well, usually, traders would buy near the support levels as they indicate increased buying interest.

Technical traders choose to adopt chart tools and metrics’ forecasting abilities to define peak patterns and price ranges to enter and leave marks in markets. Simply said, the timeframe of the chart determines which data the candlesticks use for their graphical representation. Shorter timeframes basically “zoom in” the price action of longer timeframes. The following chart shows how the 4-hour timeframe zooms into the daily.

How do Forex Chart Timeframes work?

But this can be changed to time frames that represent minutes or even months depending on your requirements. This ability to transverse forex charts over both short and long periods of time enables Windsor Broker Review you to fully monitor the fluctuations in currency rates. A bar chart more resembles a candlestick chart, with the main difference being that a bar chart has no solid body like a candlestick.

First, they are not fixed to a specific interval on the x-axis, and they also illustrate the number of transactions. Unlike line charts, which are time-based, a new tick only appears after a certain number of transactions. This might be 100 transactions, 1,000 transactions, or 10,000—basically, the more ticks there are, the more popular this currency pair is at the moment. Tick charts primarily show changes in the price of a single currency pair. These changes are indicated by “ticks” which is where the chart gets its name. There is an X-axis , which represents time, and the Y-axis , which represents the price.

These are spots where the bar for the first period doesn’t overlap any part of the bar for the second period. For example, you could use hour-long intervals over the course of a day. Each bar would represent one hour and you would have 24 bars over the course of the day. The Y-axis would follow hour-long intervals so you could progress the movement of the exchange rate. On a bullish candle, the highest line of the candle will be the closing price, while the lowest line of the candle will be the opening price.

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