How to Read Forex Charts: 11 Steps (with Pictures)

2024 Author: Jason Gerald | [email protected]. Last modified: 2023-12-16 10:50

With today's sophisticated financial markets operating worldwide, the world's currencies now have their own set of resources to calculate their value over time. Forex, or the foreign exchange market, helps to identify the differences between the world's currencies against each other, and against other assets, to help individual traders and investors take advantage of the conditional value of a currency. One resource is in the form of a currency chart that provides a visual demonstration of the value of one currency against another asset. If you want to read currency charts to learn more about their values, here are some basic steps for using one of these financial tools.

Step

Method 1 of 2: Learning Forex Basics

Step 1. Access the latest currency chart information

To read and take advantage of currency charts, you need to get them from a trusted provider.

Most small traders and investors who profit from currency trading use charts provided directly by their brokerage services. New online brokerage services often provide tools, such as currency charts, to help their clients know the latest prices

Step 2. Choose a timeframe for your currency chart

One of the most important steps in using a currency chart, or any type of financial chart, is determining a specific timeframe. The values you see are only relevant for the timeframe you specify. This online tool allows the user to change the view to a specific time period, for example, 1 day, 5 days, 1 month, 3 months, 6 months or 1 year.

Step 3. Observe the currency chart for the desired timeframe

You'll see a line graph that represents the change in currency values over that time period.

• Look at your line chart against the Y axis. The Y axis, or horizontal axis, in currency charts often shows the price of a comparative asset. When the line fluctuates, it shows how your chosen currency is performing against the currency or asset represented on the Y axis.
• Observe the X axis. The X axis in a currency chart represents the timeframe. You'll notice that these two axes have scaled and segmented values, where your graph fluctuates arbitrarily.

Step 4. Look at the structure of a particular graph

Expert traders and others will pay attention to certain visual elements in a currency chart to try to predict where the price will next move.

• Understand candlestick or candlestick charts to take advantage of this modern financial resource. Candlestick charts show a series of properties within a given trading day, with the tops and bottoms depicting price movements. Many currency charts include candlestick charts, especially online charts. By looking at this chart, you can find out more about the price than about the change in that price over a period of time.
• Look for elements like Fibonacci retracements. Fibonacci retracement is a type of price rise and fall where a reversal can signal a general trend. Read this prediction tool and apply it to your currency chart observations.
• Look at the movement of the chart against the Moving Average. Moving Averages show how prices change over a longer period of time. This may come in handy when you are reading currency charts.

Method 2 of 2: Reading the Candlestick Chart

Step 1. Understand the elements of the graph

To read the Candlestick chart does not need calculations. The chart is just a simple visual tool that shows the price movement over a certain period of time. Each bar reveals four important pieces of information:

• opening price, closing price,

  

• the highest price and the lowest price in a single bar period.

  

• In the same way as regular bar charts, these candlesticks represent a specific measure of time.

  

• The advantage of candlesticks is that they clearly show the relationship between the opening and closing prices.

Step 2. Understand that candlesticks show the relationship between the opening price, high price, low price, and closing price

This means that this chart cannot be used to chart securities that have only closing prices. Candlestick chart readings are based on pattern analysis. Currency traders mostly use the relationship of the top and bottom of the candlestick over a certain period of time. However, Candlestick Charts provide recognizable patterns that can be used to anticipate price movements.

Step 3. Learn the pattern

There are two types of candlesticks: Bullish Pattern Candles and Bearish Pattern Candles:

• The white (blank) candle represents a Bullish Pattern, indicating/used when the price opens near the low and closes near the high in a period.

  

• The black candle (fill) represents the Bearish Pattern, indicating/used when the price opens near the highest price and closes near the lowest price in a period.

  

Step 4. Understand how to read Bullish Candlestick Formation:

• Hammer is a Bullish Pattern if it appears after a significant downward trend. If the line appears after a significant uptrend, it is called a Hanging Man. The small bar and long axis constitute the Hammer pattern. The stem can be empty or filled

  

• Pricing Line is a Bullish Pattern where the first candle is a long Bear candle, followed by a long Bull candle. The Bull candle opened lower than the bottom of the Bear candle, but closed more than half way above the center of the Bear candle bar.

  

• The Bullish Engulfing Line is a strong Bullish pattern if it appears after a significant downward trend. This pattern also functions as a reversal pattern, occurring when a small Bearish candle is wrapped by a large Bullish candle.

  

• Morning Star is a Bullish Pattern which indicates a potential low price. The star shape signals a possible reversal and the Bullish candle confirms this. This pattern can be in the form of a Bullish or Bearish candle.

  

• In the Bullish Doji Star, the star signifies reversal and the Doji signifies indecision. This pattern usually signals a reversal after a period of uncertainty. You should wait for confirmation before trading on Doji Star conditions.

  

Step 5. Understand how to read Bearish Candlestick Formation:

• A long Bearish candle occurs when the price opens near the high and closes lower, near the low.

  

• The Hanging Man pattern is Bearish if it appears after a significant uptrend. If it appears after a significant downward trend, the pattern is called a Hammer. The Hanging Man is identified by the small candlestick and the long wick above the bar, and can be either Bearish or Bullish.

  

• Dark Cloud Cover is a more significant Bearish Pattern if the second candlestick is below the middle of the previous candlestick.

  

Step 6. Understand how to read Neutral Candlestick Formation

• Spinning Tops are a neutral pattern that appears when the distance between the top and bottom, and the distance between the open and close prices is relatively small.

  

• Doji candles signify indecision. The opening and closing prices are the same.

  

• The Double Doji (two Doji candlesticks next to each other) indicates that a strong move will occur after breaking out of the current indecision.

  

• The Harami pattern signals a decrease in momentum, occurs when a candle with a small bar is within the area of a larger bar.

  

Step 7. Understand how to read Reversal Candlestick Formation:

• Long-legged doji often signal turning points, occurring when the open and close prices are the same, and the distance between the top and bottom is relatively large.

  

• The Dragonfly Doji also signals a turning point, occurring when the open and close prices are the same, and the bottom is much lower than the open, high, and low prices.

  

• A Gravestone Doji occurs when the open, close, and low are the same, and the high is much wider than the open, close, and low. This pattern also marks a turning point.

  

• The star signifies a reversal. Stars are candles with small sticks that occur after candles with much larger bars, where the bars are not next to each other. The axes may be adjacent.