How To Read Forex Trading Charts?
Trading in a foreign exchange market can be very daunting when you don’t know how to read forex charts. You’ll find it challenging to make investment decisions, like what to trade and when to invest. Learning how to read forex charts is the key to your success.
With the help of live forex trading charts, you can analyze the trends in the market. You will get insights and clues of what could happen in the future. However, you can only maximize these benefits if you are well-versed in reading forex trading charts.
This guide explores some of the tips on how to read forex charts. You’ll learn how to pinpoint signals from various forex trading charts to increase your chances of earning.
What is a Forex Trading Chart?
A forex trading chart is a visual representation of the exchange rate between a pair of currencies and how it has changed over a specific trading period. You can find the exchange rate for the last ten minutes, four hours, 24 hours, or even one week.
You can access a forex trading chart for any currency pair, including the USD/CAD (US Dollars to Canadian Dollars), USD/EUR (US Dollars to Euros), and so on. Any financial instrument with price data within a specific period can create a chart for analysis.
The good news is that identifying and analyzing a currency using the chart is easy. It’s so visual, making it easy to understand the presentations of price movements over time. Also, you can quickly identify and analyze a currency pair’s patterns and tendencies.
The chart’s vertical axis (y-axis) represents the price scale, while the horizontal axis (x-axis) represents the time scale. The prices are usually plotted from left to right across the x-axis, with the most recent price on the furthest right.
How to Read Forex Charts Like a Pro
If you are venturing into foreign exchange trading, learning how to interpret forex trading charts can help you understand the market. There are three main types of forex charts: line charts, bar charts, and candlestick charts.
Here is how to read each of the three trading charts like a professional trader.
Line charts are the simplest forex trading charts to interpret. They draw lines from one closing price to the subsequent one. When the closing prices get joined together using a line, you’ll see the rise and fall of the currency pair of your choice over a specific period.
Due to their simplicity, line charts are the most basic and common forex charts used by foreign-exchange traders. If you use forex trading line charts daily, you’ll only be able to identify the bigger picture trends. The charts don’t offer much information as others do.
Bar charts are a little more complex than line charts because they provide additional information. They show a currency pair’s opening, closing prices, the highs, and lows.
The vertical bar’s bottom displays the lowest traded price for a particular period, and the top shows the highest. The vertical bar offers the currency pair’s overall trading range.
The horizontal hash on the bar chart’s left side shows the opening price, while that on the right side indicates the closing price. You’ll see the price range for every period.
Notably, the bar’s ‘high’ is the highest price the market traded a currency in the selected period. The ‘low’ is the lowest price a currency got traded within the chosen period.
When reading the forex bar chart, know that each vertical bar represents a day’s worth of trading. You can identify who controls the market, sellers or buyers.
Notably, bar charts are the basis of the following forex trading chart known as a candlestick chart. It is the most popular trading chart in the foreign exchange market.
Like bar charts, candlestick charts showcase the trading ranges between the highs and lows using a vertical line. The charts use blocks in the middle of the vertical lines to show the range between closing and opening prices, making them look prettier.
If the block is coloured or filled, the currency’s pair closing price is lower than the opening price. When the middle block is unfilled or differently coloured, it means the currency pair closed at a higher price than the opening price.
Many forex traders prefer using this chart because it is beautiful and easy to read. The charts are visually appealing, especially when you are viewing live forex charts. Also, they provide various price action patterns utilized by different traders worldwide.
The primary purpose of the candlestick chart is to improve visual aid. Remember, the charts contain the same information that appears in the bar charts.
In a nutshell, here are the advantages of the candlestick forex trading charts.
- Candlestick charts are easy to read and interpret, making them the best place for beginners to figure out chart analysis.
- Candlestick charts can help you identify the market turning points, including trend reversals from a downtrend to an uptrend or an uptrend to a downtrend.
- Candlestick charts and patterns are visually appealing, earning them cool names like the “shooting star.” This helps traders remember what these patterns mean.
As you read candlestick charts, you should also note the unique patterns, which have helped many traders make informed decisions. The two major candlestick patterns include the bullish candlestick chart patterns and the bearish candlestick chart patterns.
Also, take note of the forex indicators when analyzing the trading chart. The indicators can help you understand the currency movements you see on the chart. The most popular indicators are simple moving average (SMA) lines and Bollinger Bands.
Now that you know how to read forex charts like a pro, you are ready to start trading in the foreign exchange market. Take note of the features of the three forex trading charts, including the most popular candlestick charts. The good news is that most forex trading platforms offer demo accounts to help beginners know the market before investing.