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Importance of Reading Forex Charts

Date: Saturday, October 6, 2018 4:52 PM EDT

Understanding the foreign exchange market to the uninitiated seems like a tall order. Well we've some news, it's not only beginners who find it a taxing (no pun intended) matter. Indeed, those who specialize (or at least try to specialize) in financial analysis and currency trading, more often than not, struggle to consistently get on the right side of trades.  However, that is by no means something which should put off the aspiring trader.

All those squiggly lines you see on traders' monitors are actually the bread and butter of trading.  And truth be told, anyone can learn the ropes of reading and interpreting forex charts. Put simply, understanding the charts is essential if you want to pursue trading the currency markets, before you even consider forex indicators and systems. So, here are some tips if you're getting you're feet wet in charting:


1) Familiarize yourself with the different types of charts.

Various patterns illustrate charts, such as lines used for line charts, vertical bars for bar charts, candlesticks with a wick at each end for candlestick charts, and Xs and Os for point-and-figure charts. Trend lines keep track of the rise and fall of forex prices with inclining and declining lines. Triangle forex charts, on the other hand for example, show symmetrical patterns that break at the top when it's wise to buy, and break at the bottom when it's wise to sell. Note that the most popular charting format is known as Japanese Candlesticks, and if there's one type you want to get a hang of, this is the one.


2) Determine the time frame to follow.

A forex chart shows fluctuations over a variety of time periods. You can follow a one-day, four-hour or one-minute chart. Many forex systems trade with more than one time frame, so that you can make an accurate, "high probability" trade. However, some systems look for broader and bigger moves in the currency market - that is why they use only-one-time-frame daily systems. A lot of traders like to use a multi-timeframe approach, and this is definitely something which can give a trader an edge.

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