Monday, 06 September 2010
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How to Read Forex Charts
One of the first things you'll need to do when you start to trade Forex is to learn how to read Forex charts. These are the core of trading Forex as they show you how your chosen currency pair has moved over the timescale you've selected.
Regardless of the timescale, Forex charts show you the same information:
Each bar or line or candle on the chart shows the price movement in the period. It shows the opening price, the closing price, the highest price reached in the period and the lowest price reached as well.
A lot of people prefer to set the Forex chart to show these movements as colour coded "candles". This makes the chart easy to read at a glance, which is important in the often fast moving Forex markets. The main body of the candle shows the gap between open and close prices and is typically coloured red if the market is moving downwards and green if it's moving upwards. That said, the actual colours used are a matter of your personal preference. Above and below the candle are thinner lines, known as wicks, which show the high and low prices reached.
Most traders add a variety of lines to help decipher their charts.
These can be hand drawn trend lines - something it's probably worth leaving at first until you gain some experience - as well as lines showing things such as the high and low prices from the previous day and week. These prices can often provide significant support or resistance to price movements and it pays to learn how the market usually reacts when it reaches one of these levels.
Most trading software will also allow you to add in other analysis such as stochastics onto your chart. The problem with looking at charts is it is often difficult to see the wood from the trees. These extra analysis indicators help you to see how the market is reacting over time - they are often "smoothed" to take out some of the jagged movements and help you reach a sensible decision for your Forex trading.
Take the time to investigate the different indicators that you can add to your Forex charts and see how they can help you fine tune your Forex trading.
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