Forex charts help traders analyze the market and anticipate what could happen next. They are a visual representation of a currency pair’s price over a set period of time. Learning how to read forex charts is a very essential step in the trading process.
What is Forex Charts?
Forex charts can be an invaluable tool for traders seeking to track currency pair prices over time. These graphical representations illustrate the historical price movements of a given currency, ranging from one-minute intervals up to yearly trends. Not only do forex charts offer visual clarity into past pricing action, they also provide useful insight into technical indicators and potential future price patterns. Harnessing this knowledge could potentially help traders make educated decisions when it comes to navigating the foreign exchange market.
A forex chart is the key tool for Forex Technical Analysis.
On a forex chart, the vertical axis represents the price scale and the horizontal axis represents the time scale. Prices are illustrated from left to right across the horizontal axis and the recent price movement is at the furthest right.
How to Read Forex Charts?
By looking at a chart, you can find a group of data plotted in a general direction, which reflects the overall direction of the currency pair. The prices and dates will vary depending on the time frame you choose. Also, the more zoomed out you are, the more historical price action you will see.
Identifying trends, and knowing when they are about to reverse is the key. No matter what asset you are trading, you need to know how to read charts and price graphs. The more you understand the forex chart, the better a trader you can become.
- If the exchange rate has fallen from left to right over a period of time, then the market is in a downtrend where sellers are in control.
- If the exchange rate has risen from left to right over a period of time, then the market is in an uptrend where buyers are in control.
In a Bullish trend, you can notice a sequence of ascending lows and highs while in a Bearish trend, you find a sequence of descending lows and highs. There is another type of trend that is known as the sideways, flat, or horizontal trend. This trend is characterized by almost flat movements with convergent lows and highs. It is said to be trading in a range.
The movement of a currency pair is measured by the “pip”, which stands for the percentage in points. It is the essential unit of measurement of price movement. Most currencies are measured in four decimal numbers, except for the Japanese yen (JPY) currency pairs which are measured in two decimal places.
Types of Forex Trading Charts?
There are three main chart types that are popular among forex traders. Each chart type offers a variety of price information.
It is the most basic of trading charts, and the easiest for beginner traders. The chart represents only the closing prices over a period of time. In trading, the closing price is often considered the most important element in the price analysis. By connecting the closing prices over a set time frame, a line chart is formed. However, this type offers no more data about the price action, meaning that it shows no highs or lows, or even the opening prices.
The bar chart includes more key information about prices. It is made up of a sequence of vertical lines where each line is a representation of trading activity. Each bar includes the high and low of the trading period, as well as the open and closing price that is represented by a side horizontal shorter line. The open price is located on the left side, the closing price is on the right side of the bar.
It is considered to be the most popular in forex charts. Candlestick charts are easy to use and also very informative when it comes to highs, lows, opening, and closing prices. It is very similar to the bar chart. The vertical lines of both charts illustrate the trading period’s price ranges, while the body of the candle represents the market changes in a time period.
Here are the elements of a candlestick chart:
- Body – The area between the open and close, usually colored green for an upwards candle and red for a downward candle.
- Open – The price at which the first transaction is made on that particular day.
- Close – The last transaction made on that particular day.
- High – The highest traded price on that particular day
- Low – The lowest traded price on that particular day
Time Frame of the Chart
They are multiple time frames that can be applied to the forex chart. Starting from only one second to a minute, hour, 4 hours, daily, weekly to monthly charts. Small time frames are more usable for scalping and day trading, while bigger time frames are used for medium and long-term trading strategies.
Time frames can be set on the trading platform, as well as the chart type. On AximTrade’s trading platform, you can simply adjust your trading chart according to your preferences and trading strategy.
Mastering Forex Charts
Forex charts are the most crucial forex analysis factor that beginners struggle with during their daily life. Therefore, most traders tend to search for EA and signal to avoid spending time and effort learning how to read the forex charts. Eventually, the art of analyzing the forex market and evaluating market conditions is not hard to explore if you have the right mindset and the potential to learn.
Here are some tips for reading forex charts and understanding their technical indicators:
- Develop a learning plan: Set a plan to start by mastering the main two types of forex charts which include line charts and candlestick charts. Line charts are basics that provide only the closing prices while mastering the candlesticks provides more advanced information such as open, close, high, and low values.
- Organize the chart: Use your own MT4 or MT5 to customize your chart colors in the most efficient way that helps you in defining all factors properly. Avoid using too many colors and standardize your own layout. The colors on candlestick charts denote whether it closed higher than its opening or lower than its opening; green usually means it closed higher, and red usually means it closed lower. Color your trend lines and indicators properly to enhance the chart.
- Monitor the patterns: Look for chart patterns in order to identify when is the best time to enter or exit a trade. The best hack is to be able to select the proper time frame for your strategy and to have a clear direction while analyzing the market.
- Use the right Indicators: Utilize technical indicators such as Moving Averages, MACD, RSI, ADX & Bollinger Bands required for your trading strategy. Don’t get overwhelmed with the too many indicators available in the trading platform and learn how to master the necessary indicator that you need for your technical analysis.
- Don’t ignore the fundamental analysis: Take into account economic calendar events & geopolitics when deciding on trading strategies as they often provide insight into more favorable market conditions for trading currency pairs such as the EUR/USD. Relying on price action and trend analysis is highly effective for many traders, however, fundamental analysis is still a key factor to learn during your market analysis.
- Keep practicing: With practice and experience in reading forex charts combined with the application of sound trading strategies, traders can increase their chances of successful investments in the forex markets.
What is Trend Analysis?
Trend analysis is a type of technical analysis that looks for patterns in the price movement of securities. It is used to identify trends and predict future price movements. Trend analysis often uses charting techniques such as support and resistance lines, moving averages, channels, and candlesticks. By analyzing the pattern of price movements over time, traders can determine which direction a security may move in the future and make investment decisions accordingly.
- Gather data and create a chart showing the historical price movements of the security, such as a line or bar chart.
- Look for patterns in the chart to identify possible support and resistance lines, moving averages, or other technical indicators.
- Analyze the chart to determine if there are any established trends in the security’s price movements.
- Use this information to make predictions about where the security’s price is likely to go in the near future and make trading decisions accordingly.
Open Trading Account And Start Investing
Open a forex account in a few steps with AximTrade Forex Trading Platform and explore the unlimited opportunities for investment in the financial markets and currency pairs. As an award-winning forex broker with 4 global forex awards in 2021, AximTrade provides cutting-edge technology for copy trading and top competitive leverage in the market up to infinite leverage.
Forex Chart FAQs
What is the definition of a Forex chart?
The Forex chart is a valuable asset to traders as it provides insightful information on the cost of currency pairs over a certain timeframe. By monitoring the price changes and trading volume of currencies, investors can gain a greater understanding of worldwide trends which will help them earn more money.
How to find Forex charts?
The most popular source of forex charts is the MetaTrader 4 and Meta Trader 5 software platforms, which are usually provided by online forex brokers. However, there are also several other live online forex charting portals and applications available, such as TradingView.
How to use the Forex charts?
The forex charts have multiple interactive tools that let traders incorporate overlays and utilize technical analysis. With the built-in indicators, drawing tools featuring common functions, and customizable indicators you can download from external sources or developer communities – your trading journey is bound to be smooth and more profitable.
How do you know when to buy or sell in forex?
If you believe that the base currency is set to increase in value compared with its quote, then purchasing it may be a wise option. For example, if there’s evidence of an up surge after experiencing extended downward movement, this could indicate a buying opportunity.
How to predict forex charts?
To accurately anticipate future market trends, it is essential to review past price data, analyze trading schemes, take note of the prevailing sentiment in the markets and utilize fundamental analysis. Keep in mind that predicting a precise rate for currency pairs over time can be quite challenging; as such experienced traders build alternative scenarios based on possible price shifts and investigate support/resistance levels.