How To Read Forex Charts: 5 Things You Must Know

To learn basic skills in forex, such as how to read forex charts, is very important.

It depends on when you have this vital skill in your belt, it will be much easier and quicker when it's time for you to learn and practice an actual forex trading.

By the time you finish this article you'll learn how to read forex charts and know the pitfalls that can occur when reading them, especially if you have not traded forex before.

First, we review the basics of a forex trading as this is directly related to how to read forex charts.

Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD with EUR as the base currency and USD is the terms currency, not the other way around with the USD first. Therefore if the graph of the EURUSD shows that the current price fluctuating around 1.2155, which means that 1 euro will buy around 1.2155 U.S. dollars.

And your trade size (face value) is the amount of base currency that you trade. In this example, if you want to buy 100 000 EURUSD, you're buying 100 000 euro.

Now let us take a look at 5 important steps on how to read a forex chart:

1. If you buy the currency pair, then you are a long position, realize that you're looking for a chart of that currency pair to go up, to make a profit on the trade. That is to say, you want the base currency to strengthen against the terms currency.

On the other hand, if you sell the currency pairs short position, then you're looking for a chart of that currency pair to go, to make a profit. That is to say, you want the base currency to weaken against the terms currency.

Pretty simple so far.

2. Always check the time frame displayed. Many trading systems will use more time to determine the entry of a trade. For example, a system using a 4 hours and 30 minutes for the chart to determine the overall trend in the currency pair by using indicators as MACD, momentum, or support and resistance lines, and then a 5 minute chart to look for an increase of a temporary decline to determine the actual entry.

To ensure that the chart you look at the right time frame for your analysis. The best way to do this is to create your charts with the correct time and indicators on them for the system you are dealing and to save and reuse this layout.

3. Most forex charts, it is the bid price rather than asking price shown on the chart. Remember that a price is always quoted with a bid and an ask (or give). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or give). When you buy, you buy in question, which is the higher of the 2 rates of spread, and when you sell, you sell to the bid, which is the lower of the two prices.

If you use the chart price to determine the entry and exit, to realize that when you place an order to sell when the chart price say 1330 is the price you sell on condition that no abnormalities.

If on the other hand, you place an order to buy when the chart price is the same price, when you actually buy at 1.3333. A forex system often determine whether your order will be just under the chart price or if you need to add a buffer to the purchase or sale.

Note also that for many platforms, when you place the stop order (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either "stop if bid" or "stop if offered".

4. Realize that the times listed on the bottom of the forex chart is tuned to the particular time zone that the forex provider's charts are set to, be it GMT, New York time and other time zones.

It is practical to have a world clock available on your computer desktop to convert time zones. This is important when you're trading major economic announcements.

You must convert the time of a message to your local time and time chart, so you know when the message is going to happen, and when you need to trade.

5. Finally, check whether the times on your forex charts corresponds to when the light opens or when the light is closed. Your mapping software may be different for someone else in this way.

The reason I mention this is that if you need to trade major economic messages, either by entering a trade based on the movements that occur after the announcement, or close a trade before the announcement in avoid being stopped during the time when you need to be exact (for the minutes!) because these trades are performed in accordance with what is happening at 1 minutes immediately after the announcement, not light afterwards!