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How to Read Forex Charts

Understanding Forex Charts

Traders make all their entry and exit decisions based on price, as seen and understood through the charts. Forex charts provide an accurate visual representation of price. And traders are able to determine the forces of supply and demand. Foreign exchange currency trading decisions can be safely made through the understanding of forex charts. The key areas investors and traders have to pay attention to, are time frame of reference and investment / trading objective. The so-called forex rate of any given currency pair is depicted graphically through its charts, and so are the forces of supply and demand. If one force prevails over the other, the currency in question moves accordingly, and a trend develops. Choosing the right time frame is half the battle in the world of trading. The time frame factor determines the trend, as different time frames tend to have different elements of supply and demand, and in varying magnitude which leads to completely different trends.

forex charts in action Candlestick Charts provide a very graphical representation of price action.

Mastering Trading facilitated through the FX exchange

Traders sense when something big is about to happen, just by looking at their forex charts. Trading calendars are also used, which can warn traders of big news to hit the market and times when volatility will skyrocket. Many times, it is during the news release times that the market will move drastically up, down or both up and then down, as the news sinks in and traders adjust. Every piece of trading action seen on the charts has a story to tell. It might be a small story, or something big, but in every case something caused some trader at some place in the world, to initiate either an opening or closing trade. That trade contributed to the price action seen on the charts. Traders know that no minute goes by without a story behind the numbers, no matter how small or unimportant it may be.

Find a Time Frame that Best Suits you – Decide on Trade Time as Well

Good trading is all about combining different things together. In the case of forex trading one has to focus well on the task and decide on the time frame of preference. Then decide on trade time. The time frame determines how far in the future you need to look on the charts, when doing your analysis of the markets. The trade time factor is simply your objective, how long do you wish to keep a trade open for if it goes well, and for how long if it goes wrong. These are necessary criteria that need to be absolutely clear before even looking at the charts. This way all ambiguity is removed, because remember one time frame's trend may reverse completely as one zooms in or out on the charts. Removing ambiguity is such an important task in trading, as it creates some basic form of order out of what would otherwise had been chaotic movement. In other words, it sets criteria for making your trades. Without those criteria the randomness of the market would spill over, and into your trading strategy. By where profits and losses would tend to exactly cancel out as one would tend to trade all possible market movements.

Trading CFDs involves significant risk of loss. Trading FX/CFDs involves a significant level of risk and you may lose all of your invested capital. Please ensure that you understand the risks involved.