HOW TO USE FOREX CHARTS
Forex charts are essential for technical analysis, identifying repeated patterns, and forecasting trends for Forex traders.
Forex charts are an important tool for technical analysis for Forex traders. To make the best selections based on accurate data, it is critical to comprehend every element of a Forex chart. Use the chart type and time interval that best fit your needs. In this approach, when trading Forex, a Forex chart serves as a compass.
What is a Forex chart?
A Forex chart is a price chart that shows the actual and historical price and volume data of one or more currency pairs. In other words, a Forex chart graphically represents the behaviour of a currency across throughout various time frames. A Forex chart is often referred to as a currency chart.
Most Forex charts offer additional support like technical patterns and other Forex indicators overlays that help you to discover a trend.
Why do we depend on Forex charts?
Forex charts are key for technical analysis. Forex traders study price movement, and it is all about discovering repeating patterns and trends. When you look at historical price movements, you might be able to determine the future price movement. With this technical analysis of Forex charts, you can gain a strong idea of the trend and how price will develop.
When you perform proper technical analysis, you might be able to discover support and resistance levels. History tends to repeat itself, so you are able to use a Forex chart and look at patterns in the past and predict repeating movements.
Types of Forex charts
There are three main chart styles in Forex trading:
- candlestick chart
- bar chart
- line chart
Every Forex trader has their own preferences for which Forex charts are ideal for them, but the candlestick chart is by far the most popular. A Japanese candlestick chart is also known as a candlestick chart.
It visualizes the price movements of a currency. Each “candlestick” typically shows a certain time interval. For example, on a monthly chart, every candlestick represents a day. For more information about candlestick patterns, read out blog about this topic.
Timeframes of Forex charts
There are many timeframes to use in analysis of your Forex charts. You can choose from the following options:
- M1: 1 minute
- M5: 5 minute
- M15: 15 minute
- M30: 30 minute
- H1: 1 hour
- H4: 4 hour
- D1: daily
- W1: weekly
- MN: monthly
The optimal timeframe for you is determined by your personality and the type of trader you are. A monthly Forex chart will not help you if you are a day trader. In this scenario, a 1-minute chart could be a better option.
A common mistake beginner Forex traders make is to use too much detail. More is not always better! With a 1-minute chart you can easily get overwhelmed with all the information presented. It is most important to choose the timeframe that gives you the perfect amount of information.
Want to know more about Forex charts and timeframe analysis? Read our blog about 5 tips for timeframe analysis.
Forex tick charts
You might use a tick chart instead of a Forex chart that creates a bar for each time interval you specify. When a particular number of transactions are completed, tick charts generate a new bar. Forex tick charts are more beneficial for some Forex traders since they reduce market noise to a bare minimum. There are no low activity bars, and each bar is equally represented.
Other advantages of Forex tick charts are:
- Momentum and strength are much better visualised.
- Trends are more pronounced which makes it easier to trade as a trend trader.
- Charts are cleaner as low activity periods are not shown.
Forex charts trading platforms
In spite of the many Forex charts for sale on the market, it is okay to use the one provided to you by your trading platform. A trading platform like MetaTrader 4 gives you access to real-time market data and offers one of the best Forex charting software packages.
How to read Forex charts
First and foremost, you must determine which direction the chart is moving. When you want your base currency to be stronger than the terms currency, you want the chart to rise. When you expect your base currency to weaken, on the other hand, you expect the currency pair to fall.
Next, you must look at the time frame displayed on your Forex chart. Some charts provide the option to show multiple time frames which might give you an advantage in certain situations.
Third, you should realize that the BID prices are shown on the Forex chart, rather than the ASK price. The price depends on if you buy or sell, so it is important to consider, as it could deviate a few pips.
Next, keep in mind that the times displayed on the Forex charts are from a single time zone. It is useful to keep a world clock near you to monitor critical timings (for major economic announcements) in other time zones, as this can have a significant impact on the Forex rate.
Finally, you should check if your Forex charts represent open or close times of each interval. Every chart can be programmed differently. For example, on a monthly chart it could make a big difference if the opening time is used or the closing time.
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