How to Read a Forex Market Chart written by: lizzgathu

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There are two common types of traders in the forex market; the Fundamental trader and the technical trader. Each one of these traders has a unique method for figuring out the general direction of a trade. 



Fundamental traders need to read the news and determine the impact of certain aspects such as interest rates, economic growth, inflation, employment numbers and political risks on the forex market. The data they get from the news helps them determine the general direction of a trade.

Technical traders on the other hand make use of charting tools and indicators to identify trends and hence determine the general direction of the trend. To a technical trader, identifying trends is beneficial if they want to know where to enter or exit a trade.

What these two types of traders have in common is the ability to read charts. Learning how to read charts is a fundamental skill for every trader to have. Here are the basics of learning how to read a forex chart.

The Chart Set-Up 

The first thing you do when you want to enter a trade is to set up the chart. To do this correctly, you will need to pick a currency pair, select the period and specify the data range. 

The time period indicates the interval at which the chart updates. For example the H2 chart indicates that each point of the chart represents two hours of data. 

The data range is the amount of data you want on the chart. For instance, if you want a year’s worth of data you would set it at one year. In the case of the image above, the chart will be indicative of 5 days’ worth of data. 

Reading the Candle Sticks 

A Candlestick chart is usually the default type of chart in the forex market. Therefore understanding what the chart is telling you is vital to your trading decisions. 

The bar on the candle stick will indicate the open, close, high and low prices for the time period chosen. More specifically, the bar of the candle indicates the open and close prices and the wick of the candle indicates the high and low prices. 

It is also important to note that the candle will be blue if the closing price is higher than the opening price. The candle will be red is the closing price is lower than the opening price. 

Learning what to look for on a forex market chart can be very helpful in making a decision to enter or exit a trade. Adding trading tools such as indicators and trend lines allow you to make more accurate entry and exit decisions. 


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