Reading forex charts is the basic skill that all new traders should learn so that they are able to trade successfully in this volatile market. Before you start using charts for technical analysis you need to understand the different types so that you can use them in an effective manner to place a successful trade. The popular charts used by traders for analysis include bar, line and candlestick charts.
Steps to read forex charts
The simplest of forex charts is the line chart. The closing price of each day is represented by a single line on the chart. On the bottom you can see the dates and the price are displayed on the side of the chart. When you look at this chart you may be able to see the price movement of the currency pairs for a specific period. You may be able to understand the direction of the market when you connect one closing price to the next.
The bar chart displays the high, low, open and closing prices for specific periods. If you look at the bar chart the top vertical bar represents the high price that the currency pair was traded during a period. The bar at the bottom represents the low price at which the currency pair was traded. On the right side of the bar you may be able to see the last price that the currency was traded.
Candlestick charts are similar to the bar charts as they also display high, low, open and close prices. A period measured in minutes, hours or days is represented by each candlestick. You may choose different colours for individual candlesticks. You can use alternate colours so that they look more appealing and are easier to read.
How to use forex charts for technical analysis
You may be able to predict the future price movement of the market when you use forex charts for technical analysis. You can make use of tools like moving average, moving average convergence divergence (MACD), relative strength index and Fibonacci to analyse the foreign exchange market and determine the best time to place a trade.
You can improve your level of success in the forex market when you know how to time your trade in an effective manner. The technical analysis can help you determine the support and resistance levels in the market and you may be able to identify the entry and exit points using this analytical information.
Make use of as many indicators as you want on the charts so that you are able to understand the trend prevailing in the market. However, you need to remember that you should avoid going overboard when you use indicators on the charts. When you use too many indicators on the charts it can lead to confusion and you may not be able to ascertain the future trend correctly.
When choosing forex trading platforms it is important that you look at the chart features so that you are able to precisely understand the prevailing market conditions and make consistent profits.