Forex trading involves analyzing and interpreting different types of charts to make informed trading decisions. These charts provide essential information on the prices of different currency pairs, trends, and patterns in the market, which traders use to predict market movements. However, for novice traders, reading charts can be intimidating and confusing. In this article, we will discuss how to read charts in the forex market with three of them sitting side by side.
The first thing to note when reading forex charts is the type of chart being used. There are several types of charts used in forex trading, including line charts, bar charts, and candlestick charts. The most popular chart type in forex trading is the candlestick chart, which provides more information about the market than other chart types.
The candlestick chart is made up of a series of candles, each representing a specific time frame. The body of the candle represents the opening and closing price of the currency pair during that time frame, while the wicks or shadows represent the highest and lowest prices reached during that time.
Now let’s look at three forex charts sitting side by side and how to read them. In this example, we will use the EUR/USD currency pair.
Chart 1: Daily Candlestick Chart
The daily candlestick chart provides a longer-term view of the market, from a daily perspective. Each candle represents a trading day, and the chart shows the opening, closing, high, and low prices of the EUR/USD currency pair for each day.
Traders use this chart to identify trends and patterns that have been developing over a more extended period. For example, if the chart shows a series of higher highs and higher lows, this indicates an uptrend. Conversely, a series of lower highs and lower lows indicate a downtrend. Traders can use this information to plan their trades accordingly.
Chart 2: 4-Hour Candlestick Chart
The 4-hour candlestick chart provides a shorter-term view of the market, from a four-hour perspective. Each candle represents a four-hour trading period, and the chart shows the opening, closing, high, and low prices of the EUR/USD currency pair during that time.
Traders use this chart to identify shorter-term trends and patterns that may have developed within the longer-term trend identified on the daily chart. For example, if the daily chart shows an uptrend, but the 4-hour chart shows a series of lower highs and lower lows, this may indicate a potential reversal in the short term. Traders can use this information to enter or exit positions at the right time.
Chart 3: 1-Hour Candlestick Chart
The 1-hour candlestick chart provides an even shorter-term view of the market, from a one-hour perspective. Each candle represents a one-hour trading period, and the chart shows the opening, closing, high, and low prices of the EUR/USD currency pair during that time.
Traders use this chart to identify very short-term trends and patterns that may have developed within the longer-term and shorter-term trends identified on the daily and 4-hour charts. For example, if the daily chart shows an uptrend, the 4-hour chart shows a short-term downtrend, but the 1-hour chart shows a series of higher highs and higher lows, this may indicate that the uptrend is still intact. Traders can use this information to fine-tune their trades and make more informed decisions.
Conclusion
Reading forex charts is an essential skill for any trader looking to make informed trading decisions. By understanding the different types of charts available and how to read them, traders can identify trends, patterns, and potential market reversals, which can help them enter or exit positions at the right time. By having three forex charts sitting side by side, traders can get a more comprehensive view of the market, from a longer-term to a shorter-term perspective, and make more informed trading decisions.
