Monday, December 4, 2017

How to Analyze Forex Trading Charts

One of the main things you need to know in order to succeed in currency trading is how to analyze Forex trading charts. Naturally, this is a topic which whole books are written about so this article can only be a partial look at this important and massive topic.

Nevertheless, I will try to give you a broad but useful rundown as to what you need to do to be able to read Forex charts and work with them for your own long term success.

At the top of each Forex chart you will see a few important details you need to know about: the currency pair in question and the timeframe of the chart. There are numerous currency pairs you can rade as you always buy one currnecy with another or sell one for another. Some of the more common currency pairs are EUR/USD, USD/JPY, and GPB/USD. There are dozens of pairs and you need to be aware which is the one the chart you're looking at is dealing with.

On each chart you will see a representation of the prices of this currency pair. On some charts this is represented by simple lines, but most traders work with candlestick charts. To analyze Forex trading charts you need to be able to figure out which timeframe each candle signifies. These can range from as little as 5 minutes (or even less) to days and weeks.

Each trading style uses different time frames. Scalpers can use 5 minute charts, day traders may use 15 minutes while end of the day traders use the daily charts. In all the charts, the candles are displayed the same depending on the price changes.

Each candle has a central body and possibly an upper and/or lower wick. One end of the body shows the starting price, the one that existed at the beginning of the timeframe. The other end shows the closing price. You can tell which is which by the color of the body. A red color signifies a lower closing price, so the upper edge of the body is the starting price. A green or blue color signifies a higher closing so the ends are reversed. The end of the upper wick signifies that highest price reached during this timeframe but not necessarily the closing time. The end of the lower wick shows the lowest price reaches within this timeframe.

Now that you know how to read candles, you can analyze Forex trading charts by following trends and patterns. To make it easier to do so, you can use indicators which follow the market and indicate patterns and trends within it. For instance, you can see a graph of a moving average, or RSI, to state two examples. There are dozens of indicators and each method uses different ones together.

However, you can now easily follow any chart and improve your trading potential.

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