How to Read Forex Charts

How to Read Forex Charts: Learning the basic skills of Forex, such as how to read Forex charts, is very important. This is because once you master this important skill, it becomes easier and faster when you learn and practice the actual Forex trading system. By the time you finish this article, you will have learned how to read Forex charts and understand the pitfalls that can arise when reading charts, especially if you have not traded Forex before.

First, let’s revise the basics of Forex trading, as this is directly related to how to read Forex charts. Every currency pair is always quoted the same way. For example, the EURUSD currency pair is always EURUSD, where EUR is the base currency and USD is the term currency, not the other way around, which is USD first. So, if the EURUSD chart shows the current price fluctuating around 1.2155, it means that 1 EUR will be bought around $1.2155.

Your trade size (face value) is the amount of base currency you trade. In this example, if you wanted to buy 100 000 EURUSD, you would buy 100 000 EURO. If you buy this currency pair, i.e. you take a long position, realize that you are looking for a chart rise in this currency pair to profit from the trade. That is, you want the base currency to strengthen relative to the term currency.

On the other hand, if you sell a currency pair to take a short position, you are looking for a dip in the chart of that currency pair to take profit. That is, you want the base currency to depreciate relative to the maturity currency.

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

Make sure the chart you are viewing has the correct analysis time frame. The best way to do this is to set the correct timeframe and indicators for your trading system, and save and reuse this layout.

On most Forex charts, the bid price is displayed on the chart instead of the ask price. Remember, prices always come with bids and asks (or offers). For example, the current price of EURUSD might be 1.2055 to buy and 1.2058 to sell (or sell). When you buy, you buy at the ask price, which is the higher of the two prices in the spread, and when you sell, you sell at the bid price, which is the lower of the two prices.

If you are using the chart price to determine entry or exit, realize that when you place an order to sell when the chart price is 1.330, assuming there is no slippage, this is the price you are selling at.

On the other hand, if you placed an order to buy when the chart price was the same, you would actually be buying at 1.3333. Forex systems will often determine whether your order will simply be placed based on the chart price, or if you need to add a buffer when buying or selling.

Also note that on many platforms, when you place a stop loss order (buy if the price is above a certain price, or sell if it is below a certain price), you can select “stop when bid” or “Stop Loss on Bid”.

Realize that the time shown at the bottom of the forex chart is set to the specific time zone set by the forex provider’s chart, whether it’s GMT, New York, or another time zone.

It is very convenient to have a world clock on your computer desktop to convert between different time zones. This is important when you are trading major economic announcements. You need to convert the announcement time to your local time and chart time so you know when the announcement happens and therefore when you need to trade.

Finally, check that the time on your forex chart corresponds to the time the candle opened or the candle closed. Your charting software may be different from someone else’s.

The reason I mention this is that if you need to trade a major economic announcement, either by trading on the movement that occurs after the announcement, or by exiting the trade before the announcement to avoid being stopped during the announcement, then you need to be precise (accurate to minutes!), because these trades are executed based on what happened 1 minute after the announcement, not the candles that followed!

You now have the 5 essential elements of how to read a forex chart correctly, which will help you avoid the common mistakes many forex beginners make when viewing charts, and speed up your progress when looking at forex charting packages, and what you want Forex trading system for trading.

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