To be a professional trader you need to be skilled in reading any Forex chart, but more importantly, you need to understand the psychology behind chart patterns. Going forward, you’ll learn the essential principles to help you read any Forex currency chart. One of the benefits of understanding how to correctly read a Forex chart is that you’ll no longer need to predict or guess the market. You just need to follow what the charts are telling you to do. It’s like a GPS system on a car. Don’t try to predict what will happen, but react to what is currently happening on the charts.
The most popular forex charts are the bar chart, candlestick chart and line charts. These are simple illustrations so you can see the immediate differences between them.
The Forex Price
The price on any particular Forex chart displays the activity of all market participants. The interaction between the buyers and sellers, or the supply and demand side of the market, is what generates the price movement. Consequently, by analysing the price charts, you’re able to see the market psychology and you are able to identify optimum moments to buy or to sell.
A chart helps us determine what will happen to the price in the future by simply applying technical analysis. They also give us an insight into the market direction and the strength of the trend.
With a bar chart, all the information about exchange price for any one day is shown on a vertical line. The first key price that’s recorded on our bar chart is the open price and it’s marked as a little node on the left of the bar. The closing price is marked as a second node on the right of the bar and is the second most important price. The ceiling the price reached during a day is the high price. Of course, there are no highs without lows, and the price floor or the low price is the 4th most important price.
The bar is a pretty widespread charting method. Technical analysis is involved in the studying of these prices.
Volume is made up of the combination of buying and selling orders. The basic concept is if there’s more buying volume than selling volume, the value of the currency will increase and the price of the currency will go up. The same thing is true about the opposite – if there’s more selling volume than buying volume the value of the currency will decrease and the price of the currency will fall drop.
If the currency price is rising but volume is decreasing, this can be an early sign the trend is losing momentum and might reverse. If the currency price is falling, but volume is decreasing, then this can be an early sign the trend is losing momentum and might reverse. The Forex market is a global decentralised market, thus the trade volume is fragmented so we don’t have a proper way to measure the actual volume being traded.
A price bar is simply a linear representation of a period of time. There are many different time frames in Forex. All Forex charting platforms offer charts starting from the 1 minute up to the weekly or even monthly time frames. There is no one best time frame to analyse a currency pair and make money in Forex. However, higher time frames, such as the daily chart, provide a better perspective on the most relevant support and resistance levels.
Choosing the right time frame depends on what kind of trader you are. If you’re a day trader you need to use short time frames in order to capture the small trend in Forex. If you’re a swing trader you need to use larger time frames in order to capture the biggest swings in Forex.
Time Frame Comparisons
There are plenty of time frames used for scalping. The most common one is the 1-minute and 5-minute charts. The 5-minute time frame will allow you to hold your winners for longer than the 1-minute chart. A good choice for day traders is the 15-minute chart and the 1-hour chart. While the best time frame for swing traders is the daily chart. Depending on the kind of trader you are, you can use these different time frames to achieve your goals. Keep in mind that all time frames have advantages and disadvantages compared with the others.
When you’re looking for your favourite chart time frame keep in mind that if you’re going to use technical analysis in your trading, this kind of analysis works better on the larger time frames.