19 June, 2013
Before even thinking of venturing into the world of trading, it is necessary to understand chart reading: the basis of all Forex analysis.
There are a number of different Forex charts to know and recognize. Let’s start with the simplest: Line charts show a simple line tracing the evolution of the asset price. The time can be marked in minutes, hours, days, months or even years.
The Bar Chart: Each bar on the chart shows the starting and ending of an interval of time, as well as the highest and lowest price that the asset reached in that period. It gives us a good idea of the asset’s volatility.
The most important perhaps is the Japanese candlestick. Each interval of time is represented by a wide bar with a narrow wick at the bottom and top so it looks like a double-ended candle. When the candle is green it means the rate has gone up: the lowest point of the wide bar shows the opening price and the upper end indicates the closing price. The ends of the wicks show the highest and lowest prices that the asset reached in the interval of time.
These live Forex charts are the key to picking up price trends at an early stage. You will buy the currency pair if you notice an upward trend and sell if you see a downward trend developing
The most important decision you will have to make when using these currency charts is what the time interval will be. These can range anywhere from a minute to weeks or even months. This becomes especially relevant when you are trading based on events on the economic calendar. When you are using purely technical analysis, the tools you use will be more or less the same whether you are using a 5 minute chart or a one hour chart. You will just have to be careful to keep the trade open for the right amount on time. If you are also using fundamental analysis however, you will have to anticipate when an event will change the trend and for how long.
Before throwing yourself into your trading do not forget to practice reading charts as much as you can so that you feel completely at ease by the time you begin trading for real. Charts are your most important analysis tool. No matter what trading strategy you use, charts will be a major factor.