How to Read Trading Charts
Trading forex live charts can help identify ongoing market trends, which can help you place successful traders. With the historical and current price movements of currency pairs on trading charts, it becomes possible to understand the underlying trends followed by different currency pairs. All of this, in turn, makes forecasting forex trades easier and more predictable. In this article, we take a look at how you can read trading charts for increased profits.
What is a forex chart?
A forex chart is a pricing chart that shows the historical and current price movement of a currency pair. Fx charts also identify technical patterns and indicators for analysing future market trends and price signals.
What is a price chart?
A price chart is a sequence of different prices of a currency pair, plotted in a specific timeframe. It consists of two axes: the y or vertical axis indicates the prices, and the x or horizontal axis that indicates the time frame. There are four components in a price chart –
The opening price of a currency pair is the price at the start of the period. Different types of forex trading charts represent opening prices differently.
The closing price of a currency pair is the last price at which the pair was traded on a trading day. Like the opening price, the closing price is also represented in different ways in different forex market chart patterns.
The high price of a currency pair is the highest price at which it has traded on that trading day.
The low price of a currency pair is the highest price at which it has traded on that trading day.
What are the benefits of using forex charts?
- Helps in identifying the ideal entry and exit price levels as well as different chart patterns.
- Give a clear idea about the potential future price movement of currency pairs over multiple timeframes.
- Powerful technical analysis and fundamental analysis.
How to trade different forex trading charts
Line charts are one of the most basic charts in the forex market. The closing prices of the currency pairs on different trading days are plotted together and joined to form a line that indicates the market’s trend direction. When the line trends upwards, it indicates an uptrend. When it trends downwards, it indicates a downtrend. Since the lines are joined only on the basis of the closing prices of the currency pairs, it does not give out any further information about the market’s price movements.
Bar charts depict the closing, opening, high and low price points for the specific time period in which the currency pair has traded. The high and low-price levels are depicted as an upper vertical and lower vertical line, whereas the smaller horizontal line towards the left shows the opening price level. The closing price is represented by a small horizontal line towards the right. These live forex charts allow traders to identify gaps in the exchange rate over a period of time. It also helps identify breakout levels and supports traders in placing successful long or short orders. Bar charts are a good indicator of long term trends in the market.
Candlestick charts are one of the best forex charts as they indicate high and low trading ranges during a specific time period. Every candlestick in the chart shows the currency pair's price movement over a specific time period. The high price in the chart pattern is represented by the topmost point of the upper wick, whereas the low price is represented by the lowermost point of the lower pick. The open and close prices are the upper horizontal and lower horizontal lines of the candlestick’s body, respectively. Candlestick charts are a powerful tool to identify the market direction.
- If there are several green-coloured candlesticks, it indicates a bullish trend and signals to long the trades.
- If there are several red-coloured candlesticks, it indicates a bearish trend and signals to short the trades.
A Doji chart is a reversal signal and provides traders with ideal levels to enter or exit a trade as the current trend comes to an end. Doji charts can indicate an equal closing and opening price of the currency pair in the market. If the opening and closing prices are equal or close to each other, it creates a cross-like structure called Doji, indicating indecisiveness between the bulls and bears in the market. Since indecisiveness occurs at the top or bottom of a trend, it indicates a market reversal right after.
- When a Doji forex currency chart is formed during an uptrend, it provides a bearish reversal signal to the traders where they can short the trades.
- When a Doji chart is formed during a downtrend, it provides a bullish reversal signal to the traders where they can long the trades.
A mountain chart is like a line chart, with the only difference being the area below the price line is always shaded, giving it the appearance of mountains. The mountain charts can identify long-term trends based on which they can place buy or sell orders. However, like line charts, mountain charts do not provide any information about the opening, high and low prices of the currency pair as they are formed by joining the closing prices only.
‘High, Low, Open and Close’ or HLOC charts indicate prices for a particular currency pair in a specific time period. It provides traders with a price range between which the currency pair is trading and their current trading behaviour.
- The high price in this currency chart is the top point of the vertical line.
- The low price in this chart is the lowermost point of the vertical line.
- The opening price in this chart is indicated by a notch towards the left side of the vertical line.
- The closing price in this chart is indicated by a notch towards the right side of the vertical line.
The HLOC line is green when currency pairs are trading in an uptrend, closing at higher prices than they opened. The HLOC line is red when currency pairs are trading in a downtrend, closing at lower prices than they originally opened at.
Intraday trading charts
Intraday trading charts indicate the price movements of a currency pair within the same trading day. Some of the most commonly used intraday trading charts are –
Intraday minute charts Intraday minute charts can identify the price movement of a currency pair based on a few minutes. Such real time forex charts are helpful for short-term traders like scalpers as the charts provide them with price movement information of every changing minute. There are several minute charts that traders can analyse to enter or exit the market accordingly.
- The 2-minute charts represent the price action of a currency pair at an interval of 2-minutes. Scalpers use 2-minute charts the most.
- The 5-minute charts represent the price action of currency pairs that close, open, and make high or low price levels at an interval of 5-minutes for the specified time period. Day traders use 5 minute charts the most.
- The 15-minute charts represent a currency pair’s price action at an interval of 15-minutes each on the specified timeframe. These charts are mostly used by day or swing traders.
Intraday hourly charts Intraday hourly charts can identify the hourly price movement of a currency pair over a period of a single or a few trading days. Such charts include detailed information about the currency pair’s price and trend direction. It is most commonly used by swing or medium-term traders who hold trades from a few days to several weeks.
Intraday tick charts Intraday tick charts are a type of line chart that represents every single trade occurring in the market for a particular currency pair. Each point in the chart represents an actual market trade. When the market is not liquid, the tick chart is only a flat line. But when the market is liquid and currency pairs are traded in huge volumes, the tick chart has several upward and downward movements. Since tick charts indicate every single trade in the market, it is a highly useful chart for scalpers as it helps them monitor every single second or minute of the trading market.
- When the tick chart is sloping upwards, it indicates a bullish trend and signals traders to place long orders.
- When the tick chart is sloping downwards, it indicates a bearish trend and signals traders to place short orders.
Point and figure charts
Point and figure charts in forex consist of a column X that shows increasing prices and a column O indicating falling prices. These prices are arranged in a square grid and show the accurate price action of the currency pair in a particular time period. It helps traders understand the market’s price movement and the current trend to place successful market orders.
- When a new price movement is added in the X column, it indicates an uptrend continuation and provides traders with ideal price levels to long the trade.
- When a new price movement is added in the O column, it indicates a downtrend continuation and provides traders with ideal price levels to short the trade.
How do chart timeframes work?
Chart timeframes work on the basis of the specific period of time in which the trader wants to analyse the currency pair’s price movement in the market. One-minute charts show price movement during one-minute intervals, hourly charts show price movement during one-hour intervals, and daily chart timeframes indicate price movements during one-day intervals. Different timeframes provide traders with currency pair’s price information in different time periods that help them place successful trade orders in the short, medium or long run.
What are the main forex timeframes for charts?
Traders can trade forex based on several timeframes. The most commonly used charts are the ones that are traded in daily, hourly and minute-based timeframes.
Daily/long-term time frames
Daily or long-term timeframes are used by position traders who hold trades for over several months. These timeframes provide a currency pair’s price information on a daily basis, based on which traders can enter or exit the market in the long run.
Hourly/medium-term time frame
Hourly or medium-term timeframes are used by swing traders who hold trades for over several weeks. These timeframes provide a currency pair’s price information on an hourly basis, based on which traders can enter or exit the market in the medium term.
Minute/short-term time frame
Day traders and scalpers who hold trades only for a few seconds or minutes use minute or short-term time frames. They place several trades in a specific timeframe as these timeframes provide them with a currency pair’s price movement on a per-minute basis.
Analyse forex price charts today to place successful orders
Reading forex charts and using technical analysis by identifying patterns in the price charts help traders place successful market orders. Blueberry Markets is a forex trading platform that offers seamless trading experience with competitive spreads and powerful trade execution. Sign up for a live trading account or try a risk-free demo account.
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