How to Read Forex Charts? - Beginner Friendly Guide

The Basics Of A Forex Chart

Let us take a look at the things that you will need to familiarize yourself with before looking at a forex chart.

Currency Quotes: Forex is always quoted in pairs such as USD/JPY or GBP/EUR. These pairs are made up of two things. One is called the base currency while the other is called the quote currency.

In the case of the USD/JPY pair, the USD is the base currency and the JPY is the quote currency which essentially dictates how many Japan yen a trader will get for 1 US dollar.

Pip: Pip stands for Percentage in Points which is nothing more than a unit used to calculate a trader’s profit or loss.

Forex pairs are usually quoted to four decimal places. The only exceptional currency that does not follow this rule is the Japanese yen which is quoted to two decimal points.

Forex Charts: A Brief Summary

How To Read Forex Charts

Price charts are typically one of the very first tools that a trader picks up when he starts his technical analysis phase.

These charts visually represent each and everything that takes place during a trading activity of any given period whether its minutes, hours, days, weeks or months.

As you must be aware, a chart consists mainly of two axes which are called x and y respectively.

The x-axis is the vertical line and the y-axis is the horizontal line that is drawn on a graph.

Price scales are plotted on the y-axis while the time scale is plotted on the x-axis.

When prices are plotted on a forex chart, they are always plotted in a left to right order going across the x-axis.

Additionally, forex charts also have a variety of characteristics which may depend on the chart that you have in your hands.

Different Types of Forex Charts And How To Read Them

Points and Figures Chart

These are the most commonly used forex trading charts on the market.

A chart that uses points and figures gives traders the freedom of identifying support and resistance levels with ease, filter out exchange rate moves as well as analyzing trader patterns.

A point and figures chart will not have constant time intervals and they are usually represented on a graph paper.

As for symbols, X is used to denote the rising column of boxes whereas O is used to denote the falling column of boxes.

Bar Chart

Traders employ the use of bar charts to ascertain the price range of each period.

In case price fluctuations are very high, the bars will take a larger form while on the other hand if the price fluctuations are low, the bars will become smaller in size.

Furthermore, the opening and closing prices are also represented clearly on a bar chart with the horizontal hash on the chart’s left side representing the opening price and a similar-looking hash on the right representing the closing price for that period.

Line Chart

Line charts are a simply drawn out representation of a closing price to the succeeding closing line.

Line charts are the most basic forex charts available to a trader and they are mainly used to represent the relevant price of any particular period.

They are very easy to understand but their only downside is that they cannot provide us with precise details about the price behavior of a given period.

Line charts are predominantly used to get a look at the bigger picture as it is not too complicated which also makes it an excellent tool for beginners.

Candlestick Charts

This is the most famous forex charts on the market as every trader likes to use them because they are easy on the eyes and are easy to understand as well.

A candlestick chart is like the upgraded version of the bar chart and is almost identical to them too in many aspects.

Traders love the candlestick featured charts as they are very helpful in visualizing bearish or bullish signs on the market in a rather colorful manner.

What we mean is that Candlesticks are represented in different colors which adds to the aesthetic appeal of the entire indicator.

Here’s how you can go about reading a candlestick chart: look for the candle body and note its color, if it is green then that is a representation of the opening price being lower than the closing price.

Similarly, if the color is red then that is considered as a sign that the opening price is higher than the closing price.

Furthermore, the black lines that can be seen both above and below the colorful candlesticks are known as wicks that represent either the highest or the lowest prices that a commodity has reached for any given period.

Conclusion

For a forex trader, several types of charts and indicators have been designed specifically with only one purpose in mind which is to make technical analysis easier in general.

Experiment with the charts and see which one fits your style, you can even combine different charts to enhance your analytical skills and data collection.

Remember to start with the basics and work your way up to different combinations once you have mastered using them on their own.