To fully grasp how trading actually works, you should definitely know how to read charts. Charts are what traders use to monitor the market’s movement. This is useful since it allows you to base speculation on past results, amping up your odds of getting an accurate assumption.
One of the first skills a trader should master is reading charts. Being aware of some trading aspects, like speculating, is essential because trading in general tends to be an “on your own” kind of operation.
Knowing the basics of trading is the key element of a good trader. So to help you become the ‘good trader’ you are, down below is everything you need to know about chart reading in Forex trading:
What Is A Forex Chart?
A Forex chart is a graphical representation of the market’s movements. On this chart, you can find past prices and the volume of data of currency pairs. Traders based on past movements, to help come up with accurate speculation of the future market. Also, charts are used to identify patterns of whether a trader should enter or exit the market.
Reviewing previous market prices and technical indicators in order to forecast an investment’s future movements is known as technical analysis. And if you’re a trader who likes to use strategies like (TA), it’s essential to know how to read charts.
What Are The Different Kinds Of Forex Charts?
There are different kinds of charts you may come across as a trader such as line charts, bar charts and candlestick charts. These charts may appear to be the same to an inexperienced eye, but they are extremely distinct and much easier to recognise by a seasoned trader.
So to know how to tell the charts apart, you first have to know how they differ. Down below is a rundown on each one:
This chart is the simplest to identify because it merely shows up as a line on a chart table. Although this chart is handy when determining trends, it is not ideal to use when taking profit orders or placing stop losses.
This chart only shows traders the ‘big picture’ of the market movement so there isn’t much detail to get from it. The only thing you are aware of is that the price ended the time at X. Anything else that transpired isn’t shown.
To identify a bar chart, it’s often a series of bars, each with a high top, a low bottom and a line on either side; the right side represents the beginning price and the left side the closing price for the chosen period.
Bars that close higher than the up bars or lower than the down bars can be identified using different colours like green and red. It’s often called out to look similar to the candlestick chart, but this one is slimmer in bars and bars are more intensified during a fluctuation.
And unlike the line chart, this one is more complex since it shows traders the opening and closing prices as well as the highs and lows. So they help you distinguish the price range of each market period.
There’s a good reason this graph is called a “candlestick.” You can see from the image above that the bars are like candlesticks, the lines resemble candle wicks, and the bars resemble the body of a candle. This is often confused with the bar chart since this graph is simply a variation of bar charts.
But among the 3 charts, this is the most favoured one of all since it provides the same price information a bar chart offers but is easier to read and understand. This chart shows the high and low range of the market’s movement through a vertical line.
Candlesticks have a body that indicates the price difference between the open and close. When the close exceeds the high, it will look like an up candlestick and when it does the opposite, it looks like a down candlestick.
What Are The Technical Indicators In Forex Charting?
Technical indicators help traders analyse past price movements, volume and open interest to help them make more accurate speculations of future price movements. The two basic kinds of technical indicators are Overlays and Oscillators. To better understand each one, below are their functions:
Overlays – It can plot above the prices on a stock chart using the same scale as the prices.
Oscillators – Technical indicators that fluctuate and plot above or below a price chart between a local minimum and maximum