How to read a forex chart: A step-by-step guide

Reading charts or metrics as a trader is an essential skill, and forex charts are no exception. These charts give details of currency trading. They depict how one currency is moving with respect to another and how the exchange rate is changing.

If you are new to the world of forex, these charts may look tough to navigate, but they are straightforward. So here is how you read a forex chart.

NOTE: Crypto investments involve significant risk. Do not take the views mentioned here as financial advice. Please conduct thorough research before making any investment.

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Learning how to read forex charts

Understand the axes

A conventional chart has an x-axis and y axis representing different values. For forex charts, the horizontal axis shows the time, which may be depicted in hours, minutes, or weeks. The vertical axis depicts the exchange rate. Each point on the graph reflects one currency vs the other.

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The charts can be of different types

Line charts show a single closing price over time. They are easy to read and are best suited for beginners.

Bar charts show the opening price, the closing price, the highest price, and the lowest price. So they convey more information than a line chart. As such, they are quite popular in forex trading and are used by professional traders.

Candlestick charts are the most popular charts in forex trading. They depict the opening, closing, high, and low prices. They are easy to read visually and help identify the market sentiments.

The body of the candle shows the opening and closing price, while the wicks show the highest and lowest prices. A bullish candle is when the price closes higher than it opened, and a bearish one is quite the opposite.

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Choose a time frame

When reading forex charts, you need to select a time frame to focus on. For the short term, you can select time frames ranging from one minute to 15 minutes. For medium-term data visualization, the time frames can be from one to four hours long. For the long term, the time frames can be as long as a day to a week.

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Decipher the trend

Trends show the general market sentiment. There can be a general uptrend with higher highs and higher lows. Then there can be a general downtrend with lower highs and lower lows. Then there are sideways trends where there is not much fluctuation in the values of the currencies.

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Learn how to spot support and resistance

Support is the price level where the market tends to stop falling. Resistance is a level where the price often stops rising. Spotting these trends helps in identifying the market entry and exit points.

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Try recognizing the patterns

Forex charts often carve out patterns that get repeated time and again. Learn to recognize patterns like double tops and bottoms, triangles, and flags.

Double tops reflect prices hitting a high and a low, and then a high again. Likewise, a double bottom shows that the price hits a low, then bounces and then falls lower. Triangles show that the price has started moving in a narrow range and reflects indecision. Flags show a small pause after a sharp price change.

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Learn how to read charts in real time

See how the prices behave in real time in different time frames. Also, try not to use a chart with way too many indicators, as this can be confusing if you're not well-versed already.

Edited by Abu Amjad Khan