Understanding Forex Charts: The Basics

Curated article on forex charts:

By Yamileth Castillo

To a new trader, they can appear quite daunting – but they’re a lot easier to understand than you might think. Once you’re fully immersed in trading, reading and contributing to them will become like second nature to you.

Firstly, it’s important to note how changeable these trading trends tend to be. Whether they are high or low can be affected by a wide range of external changes – including changes in interest rates, economic growth, employment rates and political risk. What is going on around us will have a direct effect on trading activity.

To view a Forex chart, you’ll want to open up your software and decide on a currency pair. Once you have picked this, you’ll then need to identify the period interval at which it will update, for example once a day. You will also need to specify the data range – for example, you may wish to view data spanning a whole year.

Once you have entered your currency pair, time period and data range, you will be faced with a chart that at first might be difficult to read.

The default model used across all marketplaces is the candlestick chart, so it seems like a good place to start. These look similar to the bar graphs you may have studied in school, and are not so different in practice. You will notice that the shapes on the page look like candles, and they may be in different colours with additional data surrounding them.

Candle charts are used frequently in trading to demonstrate the open, close, high and low prices, in this case it will demonstrate the date corresponding to the currency pair you have selected, for your specified time period.Put simply, the body of the candle shows the open and close prices, whereas the wicks of the candle show the high and low prices.

Depending on the software you use, if the closing price is higher than the opening price of the previous candle, the candlestick itself will be blue. If this is the other way around, the candlestick will be red. This will enable you to see whether the trading period ended up or down and thus make better informed trading decisions.

It may show additional indicators to demonstrate other patterns. Experienced traders will always use technical indicators to help them make informed decisions. Using this tool, you can locate certain price trends and predict future activity. These indicators are downloadable online, and should be easy to add using your software.

Another popular model denotes a trend line, rather than a shape. They are quite self-explanatory, but can be incredibly informative for a trader to observe.

The trend line shows that prices will always trend in one of three ways, up, down, or sideways. Prices which trend up are often referred to as ‘bull markets’, whereas those which trend down are called ‘bear markets’; those that go sideways are referred to as ‘range bound markets.’ Knowing this inside lingo will help you better understand the Forex marketplace and use it to your own advantage.

These trend lines will continue until they are broken, helping a trader to visually understand which trend direction is in place. These can be drawn with the pencil tool on your software. Trends are typically connected by two extreme high or low points.
There is more to it of course, but this is a great place to start if you hope to understand more about the marketplace using a Forex chart.

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