Become a better trader by learning how to read a forex chart

Regardless of your trading approach and whether you are mainly a fundamental or technical trader, you need to learn how to read a trading chart and a few key aspects of price action. Taking the time to learn the basics will provide a solid foundation for your success in trading the financial markets.

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Become a better trader by learning how to read a forex chart

A live forex chart displays the change between the exchange rates of two currencies. It’s a representation of the price fluctuations in a graph that helps traders with an overview of the market direction and how it changes in real-time.

Charting is a vital method for a market analysis for all forex traders and while it may seem daunting at first, it’s actually quite easy once you get familiar with the basics. After all, in order to be consistently successful in live trading, you need to be able to accurately identify the trend and you can’t do that without taking a look at price action on a chart.

 

Chart time frames

A forex chart is highly customizable, and a very important aspect of this customization is the capability to change the timeframe of the chart and therefore change the way the price fluctuations are visualized.

If you want to get a clear picture of the overall market direction, you may want to zoom out all the way up to the monthly chart. Higher timeframes are better for long-term traders as they prefer to monitor the market for sustained trends. However, while the hourly or daily market movements may be inconsequential for long-term traders, it’s highly advised that both are monitored closely in order to identify accurate entry and exit points for a potential trade.

Traders that aim to profit from the short-term market movements employ a scalping strategy where they open several positions in a single day in order to get as many profits as possible. For this type of traders, monitoring the lower timeframes is essential to their success even though this strategy carries a high level of risk due to the inherent market volatility and price spikes that regularly occur.

Forex Chart

 

Types of forex charts

Aside from the time frame, you can also change your chart type to either line, bar or candlesticks. The line chart is a simple line graph that connects the points between each closing price. While it’s a simple way to follow the market direction, the most popular chart type is the candlesticks chart.

The candlestick chart provides extensive information, showing the price open, close as well as the lowest and highest rate it reached at every point in time. If you are looking at the daily chart, for example, one candle is equivalent to the price movements in a single day. This is incredibly useful for traders as it helps visualize the strength of the bulls/bears in the market, as well as the future market direction.

As you may have already guessed, candlesticks on a forex chart look similar to a candle with a wick or shadow on both ends. The top and bottom of the candle represent the open and close price accordingly and the wicks represent the highest and lowest rate of the price.  

Candlesticks are usually colored in green and red for upside and downside candles respectively. If the body of the candlestick is green, this means that the closing price climbed higher than the open while if it’s red – the closing price dropped compared to the open. The longer the body of the candlestick the bigger the price difference between open and close and the same goes for the wicks and shadows as well.

Two bullish or green candles in a row are indicative of a bullish market since the price is making new highs. This shows confidence in the underlying market and investors will be willing to buy or open long positions to take advantage of a potential uptrend. 

There are hundreds of reliable forex chart patterns to watch out for when looking at price action, and traders focusing on technical analysis will monitor the markets thoroughly in order to identify them in order to predict a trend formation and plan their trades.

 

Looking out for trends

In forex, currency pairs and their exchange rates usually range between clearly defined support and resistance levels where investors are looking to buy or sell the underlying instrument. While you may not see a clear trend moving upwards or downwards, however, there are many opportunities where the exchange rate may break out of these ranges and start a trend depending on momentum.

The common rule of thumb is never to trade against the trend. If the market is moving up, your best bet is to start buying or enter a long position. Trying to predict a market reversal, will prove a bad idea, most of the time, with negative consequences for your account balance.

 

Free forex charting

Fortunately, you can access forex live charts for free as soon as you open your forex trading account, but you should also be able to find the chart for your favorite currency pair available online as well. If you don’t want to open an account with a forex broker yet, the MT4 and MT5 trading platforms allow you to sign up for a no-strings-attached demo account. As soon as you launch the platform, you will be able to see the forex charts live for all the currency pairs of your choosing.

A live forex chart displays the change between the exchange rates of two currencies. It’s a representation of the price fluctuations in a graph that helps traders with an overview of the market direction and how it changes in real-time.

Charting is a vital method for a market analysis for all forex traders and while it may seem daunting at first, it’s actually quite easy once you get familiar with the basics. After all, in order to be consistently successful in live trading, you need to be able to accurately identify the trend and you can’t do that without taking a look at price action on a chart.

 

Chart time frames

A forex chart is highly customizable, and a very important aspect of this customization is the capability to change the timeframe of the chart and therefore change the way the price fluctuations are visualized.

If you want to get a clear picture of the overall market direction, you may want to zoom out all the way up to the monthly chart. Higher timeframes are better for long-term traders as they prefer to monitor the market for sustained trends. However, while the hourly or daily market movements may be inconsequential for long-term traders, it’s highly advised that both are monitored closely in order to identify accurate entry and exit points for a potential trade.

Traders that aim to profit from the short-term market movements employ a scalping strategy where they open several positions in a single day in order to get as many profits as possible. For this type of traders, monitoring the lower timeframes is essential to their success even though this strategy carries a high level of risk due to the inherent market volatility and price spikes that regularly occur.

 

Types of forex charts

Aside from the time frame, you can also change your chart type to either line, bar or candlesticks. The line chart is a simple line graph that connects the points between each closing price. While it’s a simple way to follow the market direction, the most popular chart type is the candlesticks chart.

The candlestick chart provides extensive information, showing the price open, close as well as the lowest and highest rate it reached at every point in time. If you are looking at the daily chart for example, one candle is equivalent to the price movements in a single day. This is incredibly useful for traders as it helps visualize the strength of the bulls/bears in the market, as well as the future market direction.

As you may have already guessed, candlesticks on a forex chart look similar to a candle with a wick or shadow on both ends. The top and bottom of the candle represent the open and close price accordingly and the wicks represent the highest and lowest rate of the price.  

Candlesticks are usually colored in green and red for upside and downside candles respectively. If the body of the candlestick is green, this means that the closing price climbed higher than the open while if it’s red – the closing price dropped compared to the open. The longer the body of the candlestick the bigger the price difference between open and close and the same goes for the wicks and shadows as well.

Two bullish or green candles in a row are indicative of a bullish market since the price is making new highs. This shows confidence in the underlying market and investors will be willing to buy or open long positions to take advantage of a potential uptrend. 

There are hundreds of reliable forex chart patterns to watch out for when looking at price action, and traders focusing on technical analysis will monitor the markets thoroughly in order to identify them in order to predict a trend formation and plan their trades.

 

Looking out for trends

In forex, currency pairs and their exchange rates usually range between clearly defined support and resistance levels where investors are looking to buy or sell the underlying instrument. While you may not see a clear trend moving upwards or downwards, however, there are many opportunities where the exchange rate may break out of these ranges and start a trend depending on momentum.

The common rule of thumb is never to trade against the trend. If the market is moving up, your best bet is to start buying or enter a long position. Trying to predict a market reversal, will prove a bad idea, most of the time, with negative consequences for your account balance.

 

Free forex charting

Fortunately, you can access forex live charts for free as soon as you open your forex trading account, but you should also be able to find the chart for your favorite currency pair available online as well. If you don’t want to open an account with a forex broker yet, the MT4 and MT5 trading platforms allow you to sign up for a no-strings-attached demo account. As soon as you launch the platform, you will be able to see the forex charts live for all the currency pairs of your choosing.

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