How to read Forex Charts

Learning how to read forex charts is an essential part of mastering the art of forex trading. There is no point in jumping into forex trading until you understand exactly how the forex trading charts work. You could probably try, but mistakes cost money when it comes to forex trading, so it is a far more sensible idea to get to grips with learning how to read forex charts first!

There are three main types of forex charts: line charts, bar charts, and candlestick charts; the latter being the most popular. The horizontal axis represents time and the vertical axis represents price.

To understand the basics of how to read forex charts, you need to be familiar with how currency pairs are listed. Currency pairs are always quoted in the same way with the base currency listed first. For example, USD/HKD shows that the USD is the base currency and the HKD is the terms currency. This means that if a forex chart of USD/HKD listed the current price at 12.43, 1 USD would buy 12.43 HK Dollars. Your trade size is the amount of base currency you will be trading in.

The first important step in learning how to read forex charts is an understanding that the currency pairs go up as well as down, which is how you make a profit. If you want to buy a currency pair, you will be looking for the forex chart to show that the currency pair is going up and the base currency has strengthened. This will allow you to make a profit on the transaction. Conversely, if you want to sell your base currency, you need the currency pair to go down and the base currency to weaken in order to make a profit.

Lines on the chart going up mean that you should consider buying, whereas lines heading down indicate that it is time to sell. Thankfully, unlike other markets, forex allows you to make money in either direction!

Forex charts use different time frames, so make sure the time frame you are working from is the correct one for your analysis. To avoid any mistakes in your calculations, it is usually better to set your charts up with the time frames and indicators of the system you are trading from. That way you can save and reuse the layout again.

There are two prices for currency pairs, a bid price and an ask price. Most forex charts only have a bid price listed. A currency price is usually quoted with a bid and an ask price. Currency is bought at the ask price, which is always the higher of two prices. Currency is sold at the lower bid price.

Always remember that the time at the bottom of a forex chart will be set to the particular time zone of the forex chart provider. If you are trading against major economic announcements, you will need to convert the time difference to ensure accuracy.

Practice reading the charts and you will soon be able to see how major news stories affect the currency fluctuations!

Related posts:

  1. Introduction to Forex
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