If you want to make profits in forex trading, you must understand how to read forex charts. In a forex trading platform, you may see the price of a currency pair in a table of bid/ask numbers and also in a chart. The prices of all currency pairs are always changing every second. For example, the running price of EUR/USD pair is 1.4210, then this price will either move up or down in every second. Indeed, watching the currency pair price movement in a table is difficult to see the scheme of its price movements. Therefore, those currently pair numbers are also displayed in charts, so traders can easily estimate the next price movement direction.
Forex traders usually have developed several methods to describe the movement direction of a currency pair. Fundamental traders will usually read the latest economic news of a country from several sources to obtain information on a country’s interest rate, economic growth, unemployment rate, inflation, and the political condition of the country that can affect the high supply and demand of the currency. These fundamental factors have a significant impact on a currency’s price movements due to the reaction of the traders to a news or economic conditions. Technical traders use tools on charts and indicators to identify the trends of currency prices and determine the key point when to enter the market and when to get out. Whatever your type of trader, it’s really important to know how to read charts in forex trading.
How to Read Forex Charts
Knowing how to read forex charts is a must before you start a real forex trading. So, in this article, we are going to discover how to read forex charts in MetaTrader 4 (MT4). MT4 is the most popular forex trading platform and widely used. When you open a forex account, you will need to install MT4 on your computer. The running MT4 it will show you some available currency pairs in which each of them has a chart for you to see the price movements of a currency pair. Take a look at the forex charts preview below.
At the left column of the picture above, you will see a table of currency pairs with its changing prices. At the right column with a black background, you can see two patterns of two pairs prices data in the form of a chart. From this chart, you can watch and analyze the up and down of the trend of a currency pair. Some MT4 may allow you to open more than one forex charts.
Time Frame (TF)
The price movements on a chart can be viewed based on a certain time range. It could be in minutes, hours, daily, weekly, or even monthly.
- M1 (1 minute),
- M5 (5 minutes),
- M15 (15 minutes),
- M30 (30 minutes),
- H1 (1 hour),
- H4 (4 hours),
- D1 (24 hours / day),
- W1 (weekly),
- MN (monthly).
The charts on a smaller TF is the detail of a larger TF. The H1 chart is a detail of an H4 chart. Four candles on H1 equal to one candle in H4.
You will find that there are 3 forms of charts in an MT4 platform which you can select such as, bar chart, candlesticks, and line chart. But the most commonly used chart is candlesticks chart. At the preview image, you can see that each candle displays the opening price, closing price, highest price, and the lowest price in a given time unit. For example, in H1 TF one candle reflects the price for one hour.
When the closing price is higher than the opening price, means that the price goes up and the candlestick chart shows blue. Conversely, when the closing price is lower than the opening price means that the falling price is depicted with a red-colored candle. Most forex trading platforms allow you to set the candlestick chart color on the properties menu of the MT4 chart.
Drawing a Trend Line
There are three trends you can see in a chart of a currency price; bullish (up), bearish (down), or flat (sideways). The trend line is used to help traders in recognizing the trend direction. To illustrate the trend line is to connect more than two highs or lows. If the next price does not penetrate the trend line, means that trend is most likely to continue. There would be times when a price tends to flat which is bouncing up and down in a certain period of time. In this condition, the price is usually consolidating to continue the trend or reverse the direction.
A bar chart (OHLC) shows the marks of the highest (top) and lowest (bottom) traded price, while the vertical graph indicates the overall trading range of the currency pair. The right-side horizontal line indicates the closing price point, while the left-right horizontal line indicates the opening price point, while the right-side horizontal line indicates the closing price point. A bar is one period of time, could be one hour, one day, or one week. Take a look at the figure below to learn how to read bar chart in forex trading.
If you want to predict price data and creating marketable buy and sell signals, you can use forex indicators. By simply looking at the charts on the forex trading platform may help in making trading decisions. But many traders are also using technical indicators to help them make more trading decisions become more informative. These tools help traders in finding the trend of a currency pair price and predict future price movements. The MT4 trading platform has been equipped with over twenty popular pre-loaded indicators. Besides, using MT4 you can also add other indicators. To add an indicator to the graph, click on the navigator column which by default is located below the price table.
Learn How to Read Forex Charts by Practicing
If you are a beginner in forex and would like to know how to read forex charts, you can practice using a demo of MT4 forex trading platform. Most forex trading platforms offer a free account where you can try the demo version to trade forex using virtual money. By trying it, you may be capable of buy and sell a currency pair, know the advantages of forex trading, and get used to reading forex charts in terms of price movements, charts’ signs, interpret the forex market trend, and so on.