How To Read Forex Charts: 5 Things You Must Know

[John]

Learning the basic skills in forex, such as how to read forex charts, is really important.

This is because once you have this vital skill under your belt, it will be a lot easier and quicker when the time comes for you to learn and practice an actual forex trading system.

By the time you finish this article, you'll learn how to read forex charts, as well as know the pitfalls that can occur when reading them, especially if you haven't traded forex before.

Firstly, let's revise the basics of a forex trading as this relates directly to how to reade forex charts.

Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency, not the other way round with the USD first. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.

And your trade size (face value) is the amount of base currency that you're trading. In this example, if you want to buy 100 000 EURUSD, you're buying 100 000 EUROs.

Now let's have a look at the 5 important steps on how to read a forex chart:

1. If you buy the currency pair, that is, you're long the position, realise that you're looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency.

On the other hand if you sell the currency pair to short the position, then you're looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.

Pretty simple so far.

2. Always check the time frame displayed. Many trading systems will use multiple time frames to determine the entry of a trade. For example, a system may use a 4 hour and a 30 minute chart to determine the overall trend of the currency pair by using indicators such as MACD, momentum, or support and resistance lines, and then a 5 minute chart to look for a rise from a temporary dip to determine the actual entry.

So ensure that the chart you're looking at has the correct time frame for your analysis. The best way to do this is to set up your charts with the correct time frames and indicators on them for the system you're trading, and to save and reuse this layout.

3. On most forex charts, it is the BID price rather than the ask price that's displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.

If you use the chart price to determine an entry or exit, realise that when you place an order to sell when the chart price is say 1.330, then this is the price that you'll sell at assuming no slippage.

If on the other hand, you place an order to buy when the chart price is the same price, then you'll actually buy at 1.3333. A forex system will often determine whether your orders will be placed simply according to the chart price or whether you need to add a buffer when buying or selling.

Also note that on many platforms, when you're placing stop orders (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either "stop if bid" or "stop if offered".

4. Realise that the times shown on the bottom of forex charts are set to the particular time zone that the forex provider's charts are set to, be it GMT, New York time, or other time zones.

It's handy to have a world clock available on your computer desktop in order to convert the different time zones. This is important when you're trading major economic announcements.

You'll need to convert the time of an announcement to your local time, and the chart time, so you'll know when the announcement is going to happen, and therefore when you need to trade.

5. Finally, check whether the times on your forex charts corresponds to when the candle opens or when the candle closes. Your charting software may be different to someone else's in this way.

The reason I mention this, is that if you need to trade major economic announcements, either by entering a trade based on the movements that happen after the announcement, or to exit a trade before the announcement in avoid getting stopped out during it, then you need to be precise (to the minute!) as these trades are performed according to what happens at the 1 minute immediately after the announcement, not the candle afterwards!

So there you have it.

You now have the 5 essential keys to how to properly read forex charts, which will help you to avoid the common mistakes which many forex beginners make when looking at charts, and which will speed up your progress when you're looking at forex charting packages, and forex trading systems that you want to trade!

Now that you know this, practice looking at forex charts with each of these 5 points in mind.

So get to it!

by Mark Hamburg

[waseemanwer]

Learning the Standard Skills in forex example you can read forex charts, is indeed important.

Associated with display this vital skill above your belt, this is more convenient and quicker where the time comes that you choose to learn and exercise a currency trading system.

By the point a person finishes this , you will see how to read forex charts, in addition to you haven't traded forex before.

[boniez]

combination of several indicators can help us in reading candlestick charts, because after all indicators play an important role to it. but we also can use other alternatives such as reading the history of price, because usually movement price is repeated,,, and with overtime we would get to used with the characteristic

[radex78]

I prefer to see the pattern chart in all time frames, but I prefer to make decisions in the time frame 5 minutes or 15 minutes by looking at the candle Pattern and price action

[pinoycity]

I like the confidence of the post when it says

By the time you finish this article, you'll learn how to read forex charts

But then, it is clear that this post is for those who have already traded and not really for newbies. By the way, the EUR/USD pair closed at 1.4118 and seems to have been stable on this day. I wonder if its value will pick up next week or not?

[chuna1985]

I want to add that in order to be successful in chart reading in forex trading, we must also learn how to use trend lines in our trades. They both will combine to give us more guarantee of success in our trades.

[nehmer]

I prefer to see the pattern chart in all time frames, but I prefer to make decisions in the time frame 5 minutes or 15 minutes by looking at the candle Pattern and price action

15 min is the ideal chart for me its easy to use and the grid will help you usually i count 2 grids above my trade that would be equal to more or less 100 pips each i have realize now that the market is very active 30 pip sl is not fun thats is why ill make it bigger to 100 pips hoping that by the end of the day it will be closed.

[nahiyar]

The article is very good and informative for all kind if traders.I personally use the M1 chart, because I collect only 3-5 pips, if I am scalping.Otherwise to earn more than 20 pips, the best chart is the M5 and M15.However, we must also consider other market economic news, technical and fundamental analysis before opening any new position.

[Lord]

I want to add that in order to be successful in chart reading in forex trading, we must also learn how to use trend lines in our trades. They both will combine to give us more guarantee of success in our trades.

Trend lines are wonderful tools to predict chart movements and combining it with some interesting indicators, predisposes you to more profits. When i want to read my charts i do the 15 minutes and occassionally use the 10 minutes when i think things are a bit clearer. Reading forex charts are interesting at volatile conditions.

[Hoang Long]

If we know how to draw trendline or using indicators then reading the chart is as simple as it is because we just need to follow those trading tools that we used. Follow indicators but in a mart way and consider the fundamental situation to have a clear view.

[JoeltonsInv]

Trend lines are wonderful tools to predict chart movements and combining it with some interesting indicators, predisposes you to more profits.

The problem is with having the skill to harmonize the indications from these indicators because some indicators actually are not able differentiate between clear signals and noise! It takes time and practice for a trader to procure such skill!

[nehmer]

If we know how to draw trendline or using indicators then reading the chart is as simple as it is because we just need to follow those trading tools that we used. Follow indicators but in a mart way and consider the fundamental situation to have a clear view.

there are people who do not follow rules on making a trendline XD that is the sad fact on that becoming it hard for those people to withdstand the errors in trading. I think they need the indicator now that its automated and just see the market as it is simple no need to calculate or see which are high and low.

[Hoang Long]

there are people who do not follow rules on making a trendline XD that is the sad fact on that becoming it hard for those people to withdstand the errors in trading. I think they need the indicator now that its automated and just see the market as it is simple no need to calculate or see which are high and low.

Not like drawing fibs levels drawing trendline is more simple and I think all trader can able to do that if they try it once. We must try in other to know what we can do. using indicators for that purpose is not a bad ideal also since it save your time but if you have enough time then drawing it yourself is a recommended.

[nahiyar]

There are so many forums where different traders show their drawn charts, explaining them with different kinds of formulas.I can never understand them because they are following different kind of indicators.I follow only the simple chart of MT4, using M1 period..

[chuna1985]

The newbie traders must all understand that the charts in forex trading are the simplest trading tools and also the most popular. It must be learnt by all traders who wants to register success in their trading.

[Hoang Long]

There are so many forums where different traders show their drawn charts, explaining them with different kinds of formulas.I can never understand them because they are following different kind of indicators.I follow only the simple chart of MT4, using M1 period..

Forums with lot types of people, there have good traders and bad traders who come to make you lose. I think if few shared charts and compare it with real market you will know which traders you must respect. You can trade and you your own analysis but you can also learn much thing from others.

[nahiyar]

Forums with lot types of people, there have good traders and bad traders who come to make you lose. I think if few shared charts and compare it with real market you will know which traders you must respect. You can trade and you your own analysis but you can also learn much thing from others.

I have been watching the charts of some expert traders in different forums.All those traders use either H1 or H4 charts, and they give the trend of market for next 400-600 pips, which is not easy for me to understand, because it is impossible that market will directly move to such high number of pips.The market will must get retrace in between this movement..

[Hoang Long]

I have been watching the charts of some expert traders in different forums.All those traders use either H1 or H4 charts, and they give the trend of market for next 400-600 pips, which is not easy for me to understand, because it is impossible that market will directly move to such high number of pips.The market will must get retrace in between this movement..

But at least thank to those charts you can know about the long term trend of the market and the good way that is not trade against it. You can trade on lower time frame but I think you still need to check higher time frame to confirm the trend. Trade against the trend is the last thing that I want to do.

[nehmer]

Not like drawing fibs levels drawing trendline is more simple and I think all trader can able to do that if they try it once. We must try in other to know what we can do. using indicators for that purpose is not a bad ideal also since it save your time but if you have enough time then drawing it yourself is a recommended.

knowing also how to draw a trendline is important for a trader since a program indicator can make mistakes also basing on their calculations and program codes given. So no matter what we do try to recheck it and try to make sure it is correct.

[Hoang Long]

knowing also how to draw a trendline is important for a trader since a program indicator can make mistakes also basing on their calculations and program codes given. So no matter what we do try to recheck it and try to make sure it is correct.

There only one way to calculate Fib levels so almost indicators or EA help with drawing those levels will work the same ways unless creater want to add some tests or add more lines but the result may not the same if we use the same indicator for different brokers because open and close price is different ( As mentioned before it's one of the way that broker scam us).