There are a number of methods used by forex traders to predict the movements of currency pairs. However, no matter your trading method, you'll need to know how to read a forex chart - there's no escaping it. Luckily, we created this detailed guide to help you get started. You must crawl before you can walk. And forex charting is no different — you first need to have a good understanding of the basics, before you can progress to advanced stuff.
In the global foreign exchange market, retailers, investors, speculators and institutions determine the relative value for the conversion of one currency to another via the buying a selling of currency pairs.
The first currency is called the base ; the second is called the quote. When you buy a currency pair, you buy the base currency, and sell the quote currency. Typically, forex pairs are quoted to four decimal places 0. The exception to this is Yen pairs i. In this case the second spot after the 0 is referred to as a pip.
Now that you're up to speed, lets move on to what you really came for, how to read a forex chart. For example, the chart above Euro vs. Dollar shows how the exchange rate between Euros and US dollars has fluctuated over time. What this means is that each point on the graph, whether it be a line, candle or bar represents the trading data for one day.
If you were to change the timeframe to a 60 minute chart , each point on the chart would now represent 60 minutes worth of trading data. With most free forex charting tools you can choose to display timeframes from as low as 1 minute all the way up to one month.
If get more advanced charting software, you can view lower timeframes. Compared to a line chart, which shows the price close to close, candlestick charts show four times the amount of information, displaying the close, open, low and high price of a given period. The body of a candlestick represents the difference between the opening and closing price of the currency for a given time period. To help make sense of the currency movements depicted on a chart, traders have developed a number of different visual guides to assist them — indicators.
Bollinger Bands are volatility bands placed x standard deviations around a moving average. Developed by John Bollinger , the bands widen in periods of increasing volatility and narrow when volatility decreases.
From a traditional perspective, the bands are used to highlight potential oversold and overbought areas. For example, if a price move breaches the upper band, it might be expected that the price would then revert back to its mean, or in this case the middle moving average.
The indicator compares upward price movements in the closing price to downward movements in the closing price over certain time periods. The default period, suggested by Wilder, is 14 periods.
Moving averages are used as they help smooth price fluctuations over a certain period, giving the trader a clearer picture of the direction of the price movement. The Ultimate Guide for Beginners.
Table of Contents What is Forex? How to Read a Quote What is a Pip? How to Read a Currency Quote? It shows how the exchange rate of currency pair has changed over time. The choice is yours. How do Forex Chart Timeframes work? The amount of time shown on the chart depends on the particular timeframe you select. By default, our forex charts are set to daily 1D timeframes. Types of Forex Charts Forex traders have developed several types of forex charts to help depict trading data.
The three main chart types are line, bar, and candlesticks. You might also like Last updated on July 16, myforexchart. Your submission has been received! Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you.
Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. All information provided by Myforexchart is for educational purposes only. Myforexchart may be compensated by IG and other brokers listed as a result of any promotional activity.More...