There are several methods Forex traders use to analyze and predict their trades successfully. Some people trade as a full time profession, being able to predict trades by keeping up with news updates. Many people don’t have the time to do this effectively, so they prefer using charting tools and indicators to help them accurately trade.
Regardless of the method you decide to use in assisting your trades, you won’t be able to do much without understanding how to read a Forex chart. To help launch you into Forex trading success, we have outlined a few tips to reading a Forex chart to get you started.
What is a Forex Chart?
It is important to understand what exactly a Forex chart is before learning how they are read. A Forex chart is simply a depiction of foreign exchange rates between currencies, that are shown through a graph. Forex charts are the backbone of trading as they allow you to not only track your trades, but also detect a trend line for future trades.
Importance of Price Charts
Understanding how to read price charts is fundamental for any trade to be able to determine trends, and ultimately how to enter a trade. To understand the importance of a price chart, it helps to learn how to use one.
There are three main sections to be aware of when filling out a price chart. The ‘symbol’ is the foreign currency in which you are looking to trade. The ‘period’ is the amount of time each point in the chart will represent. For example, if you are viewing a chart by the month, it is helpful to set your period to a larger time frame. Setting the time frame is called the ‘data range,’ which would be an indicator of how much time you are wanting to look at. If you are viewing a chart with a period of an hour, it would be easier to read if your data range were measured by the week.
How to Read Candlesticks
Forex charts are most commonly viewed through candlesticks, though they can also be viewed through line and bar charts. Candlesticks are a crowd favorite amongst traders as it gives you the most information at once. Candlestick charts not only show where to open and close, but also how the price has moved over a period of time.
The “body” color of a candlestick will either be green or red to indicate the opening and closing price of a currency over time. When the opening price is higher than the closing price, the candlestick will be red. When the opening price is lower than the closing price, the candlestick will be green.
There are black lines that stem out from the top and bottom of candlesticks that are called ‘wicks’. These wicks allow you to track the highest and lowest prices the candlestick has reached over the course of time.
Using Technical Indicators
There are thousands of custom indicator tools out there (here is a guide to 4 Forex Indicators Every Trader Must Know), and with certain software, you can even customize your own. When you are viewing your charts, you can select any indicator from your tools or ‘add indicator’ if you would like to install and a new indicator that isn’t pre-loaded. There is an indicator for just about every aspect of Forex trading, making your trading as streamline as possible.
Understanding how to read a Forex chart is the first step in your journey to trade wins.