Forex trading is not as simple as it seems, especially for beginners. After all, beginners have to familiarize themselves with numerous tools and procedures before they take the first step. Sure, the method gets easy over time, but only if you get used to it. One of the essential tools that might get on your nerves is the forex trading charts. These charts enable traders to analyze the current market condition. Furthermore, it provides valuable insights and ideas about what step you should take next. Therefore, learning these charts is as important as making a trade. Here’s a proper guide on how you can read forex trading charts easily.
How can Forex Trading Charts Help?
Forex trading charts highlight the change in supply and demand. The chart includes a live aggregation of the transaction of currency pairs. The chart includes millions of transactions, helping traders make informed decisions. Because traders try to predict future market conditions, they depend on these charts. Professionals incorporate future news from these charts. This future or known news will drive the market based on the transactions each trader makes. When the known news doesn’t align with expectations, the cycle repeats itself.
Reading Common Types of Forex Trading Charts
Point and Figure Charts
Point and figure charts are popular among forex traders because they allow viewing trade-specific patterns. Other than these patterns, the charts also help them identify resistance levels, clear support, and filter the moves in the exchange rate. This chart includes a lot of boxes, where each box has a specific value that the exchange rate will achieve. While reading the charts, focus on the mark inside the box. If the box includes an “X,” it indicates a rising column. However, if the box includes an “O,” it points to a falling column.
The line chart includes a series of single exchange rate observations per time. This chart includes a straight line that fluctuates depending on the exchange rate. You can utilize line charts to identify large-scale patterns and overall trends. The line charts also comprise an X-axis but on a fixed interval. You can understand the price behavior at a certain time. The price bar includes four possibilities:
- Opening price
- Highest price
- Lowest price
- Closing price
Candlestick charts have the same nature as other forex trading charts that indicate the lowest and highest trading ranges. This chart also includes a vertical line similar to line charts. In more advanced versions of the chart, experts include a block in the centre of the opening and closing prices, indicating the range. If the block between the prices does not include any color, the opening price is lower than the closing. If the box includes colors, the opening price was higher than the closing.
What does Forex Trading Charts Include?
Before you start reading forex trading charts, here are some advanced elements that you should not miss:
Price and Time
The forex trading charts will show you the price action based on the time. It includes a horizontal axis as time and a vertical for the price. It indicates that you can view previous prices when moving to the left side of the chart. You can also zoom in and adjust the graph according to the time and date.
Pips, or the exchange rate pricing, will indicate how currency pairs are shifting. Pips are the percentage in points, which is a unit to measure price movement. In long-term forex trading, you need to analyze risk management for success. Pips will enable you to comprehend the flow of prices and minimize risks.
When analyzing forex trading charts, you have options to choose from different timeframes. There is no rule to choose the best timeframe. You must simply understand your trading style and decide which timeframe will help you better. For instance, there are weekly, daily, and monthly timeframes for forex trading charts.
With all the above basic information and types of foreign exchange charts, you can identify historical price movements and make a better decision in your next trade. Every trader views the information in a different manner. This explains why the foreign exchange market is rapidly shifting. You just need to understand technical indicators and predict the future based on your analysis and known news.