One of the first things you'll need to do if you want to start trading is learn how to read forex charts. Knowing how to read forex charts is crucial to your success if you want to make money on the exchange.
Many traders, especially novices, may become discouraged when they see different Forex charts. Trading charts appear to be difficult to comprehend and interpret for a novice trader.
But that's just how it appears. Every form of Forex chart aims to simplify trading, not to confuse regular traders. Price-based chart analysis becomes more accurate and effective when you use charts since they make it easier to examine large amounts of data.
Being able to convert enormous amounts of information—typically numerical—into a different, less abstract form is crucial for traders who work with this kind of data.
We will walk you through how to read the various types of forex charts to get you started.
What is a Forex Chart?
A graphical depiction of a currency pair's price fluctuation over time is called a forex chart. The exchange rate between two currencies and its historical fluctuations are displayed on a forex chart. Understanding how to use these charts will help you comprehend the markets if you're new to FX trading.
Any currency pair that you choose, such as EUR/USD (Euros to US Dollars), GBP/JPY (British pounds to Japanese yen), and so on, can be seen on a forex chart.
The horizontal x-axis represents time, and the vertical y-axis represents price. Most trading platforms allow you to select a timeframe, which can be anything from tick-by-tick to a whole month, to determine how often fresh data is plotted to a chart.
How to Read Different Types of Forex Charts
A variety of charts, including line, HLOC, candlestick, and mountain charts, are available to forex traders. Everyone is understood differently.
Your choice of chart style will ultimately rely on your preferences, however the most widely used types are candlestick and HLOC charts since the time period displayed on a forex chart varies depending on the time frame you choose.
A lot of forex charts display trading data over a 24-hour period by default, with a daily time span selected. You can choose different time intervals as well, such as minutes or months.
You will be able to identify trends and take advantage of profitable possibilities if you can read advanced forex live charts and real-time trading charts. Compared to line and mountain charts, some charts show a lot more information.
Let’s have a look at each type of chart in more detail:
Line charts
Line charts, the most basic of all, plot a line connecting two closing prices. They demonstrate the rise and fall of a currency pair over time when tied together with a line.
A line chart just displays the close price for the chosen time period, as contrast to a candlestick or HLOC chart. The closing prices are combined to create a line of successive points.
This is a fairly basic method of presenting pricing data because it doesn't provide the period's peak, low, or open price. Because of this, a lot of forex traders simply use line charts to evaluate long-term trends, even if trading short-term patterns may require the use of extra information that is more pertinent.
HLOC or bar charts
HLOC of bar charts are ideal when you require more information, but they are a little more complex. The term "high, low, open, close," or "HLOC," refers to a chart that presents the exact same information as a candlestick chart but in a different format.
They display the highs and lows as well as the opening and closing prices of a currency pair.
A vertical bar's top represents the highest traded price during that time, and its bottom reflects the lowest. The entire trading range of the currency pair is shown by the vertical bar.
A bar chart's horizontal hash, which displays the opening price, is located on the left side. A horizontal hash with the closing price is on the right.
Recall that the line will turn red if the currency pair's price dropped over the specified period and closed at a lower opening value and green if the pair's price increased during the specified period.
A "doji"—a black cross—is occasionally produced when the opening and closing prices are equal or extremely near to one another. This shows that neither buyers nor sellers are able to exert enough control over the direction of price changes, which is suggestive of market indecision.
A doji is a neutral design with minimal meaning when viewed alone. But if a doji appears inside an upward or downward trend, it can portend an impending reversal.
Candlestick chart
Pricing data is shown on candlestick charts as long, thin bars that resemble candles.
Every candlestick displays the price movement over the chosen time frame. With the exception of the candlestick on the far right of the chart, which will display live prices for the current, incomplete period, every candlestick on the chart, for instance, will depict how prices changed over a 15-minute period if you have selected a 15-minute timeframe.
A green candlestick, at first appearance, suggests that the pair's price increased during the specified period and closed higher than it opened. Conversely, a red candlestick shows that the pair's price dropped and closed at a lower level than it opened.
Candlesticks with long wicks but short bodies, on the other hand, indicate that there was considerable pressure in one direction, but that the price was pushed back before the end of that period.
In addition, each candlestick will show four specific prices for the currency pair:
- Open: the price at the start of the period
- Close: the price at the end of the period
- High: the highest price traded during the period
- Low: the lowest price traded during the period
The relationship between the four prices shown by a candlestick can tell you a great deal about how market conditions are shaping up and who is driving the price action, buyers or sellers.
Mountain chart
A mountain chart is the last kind of chart. This is similar to a line chart, but instead of a line, the area underneath it is darkened, making it look like a silhouetted mountain. Similar to line charts, this kind is mostly utilised for evaluating long-term trends because it hides the high, low, and open prices for each period.
Forex Indicators
Forex indicators help traders make sense of the currency movements they see on a forex chart. There are a lot of different forex indicators out there, but here are a few of the most popular.
Simple moving average line
The SMA, or simple moving average line, is the most often used forex indicator. The calculation of this indicator involves summing up the closing prices over a predetermined period and dividing the result by the duration of that period. The simple moving average line, for instance, would be obtained by dividing the total by five after adding up the closing prices over a period of five hours.
Bollinger Bands
Bollinger Bands are used to gauge market volatility. A squeeze occurs when the Bollinger Bands are very close to one another. Squeezes are interpreted by traders as an indication of impending volatility and potential trading opportunities. Conversely, more widely spaced bands indicate lower volatility and a higher chance of closing a transaction.
Relative Strength Index (RSI)
The RSI is used by traders to determine when the market is overbought or oversold. A number below 30 on a scale of 0 to 100 indicates that the market is oversold and that a trader should consider making a purchase. Readings over 70 indicate that a trader should consider selling because the market is overbought.
Using Indicators and Studies in your Charts
When you get more adept at interpreting charts, you may begin utilising technical indicators to learn even more about the present state of an asset's price action and to gauge both the rate of market volatility and value fluctuations.
Technical indicators are mathematical tools that assist traders in predicting potential future market directions by helping to contextualise previous and present price movement. These signs also assist in determining when a reversal is about to occur and when markets are "overbought" or "oversold." Indicators come in a variety of forms and aid traders in comprehending several price components, including trend, momentum, volatility, volume, and market cycles.
Conclusion
In summary, your trading strategy is intimately related to the charting method you select. Candlestick charts and area charts are useful if you trade price patterns; if you trade trends, bar charts are more appealing.
Technical indications based on mathematics require something quite basic, such as a standard line chart. Keep in mind that robots are designed for a specific kind of chart when using technical analysis indicators and expert advisors. Expert advisors are generally more effective when used with a specific charting approach, but they are not always universal. There are also a lot of technical indicators made for bars, candlesticks, and other shapes.
In addition, a lot of traders use a variety of Forex price charts in order to conduct a more precise market analysis and determine the sentiment of the market. Choose the suitable Forex trading chart from those I mentioned in the article and precisely define your trading approach.
