Tutorial Forex : How to Read a Forex Chart
How to read a Forex Chart
Forex traders have developed several methods to identify the price direction of a currency exchange. Traders who rely on fundamental analysis methods use research to identify how the demand and supply of a currency are influenced by interest rates, economic growth, employment rate, inflation and the risk arising from the political situation . On the contrary, traders rely on technical analysis using graphic methodologies and analytical indicators to identify the correct trends and price levels to enter or exit the market.
That said, however, it is absolutely important that, whatever your specific orientation, you learn to read forex charts …
OPEN A FOREX GRAPH
To begin, we press the “create chart” button located at the top of the Trading Station screen. Having done this we have to choose a currency pair, choose the period and define the date range.
Reading Forex Charts
The period is the time scale interval that is updated on the graph. For example, if the period is 1 day each point on the chart represents a full trading day; if you choose 5 minutes each point contains the data collected in 5 minutes. The date range is the amount of data needed to populate the chart. If, for example, you want to see the trend for a year, you have to choose a year as the interval.
USING CANDLESTICK CHARTS
The type of graphics default is that called “candles”. This type of chart is used very frequently on Forex. A bar (representative element of a chronological interval, can be one minute as a month, or any other time interval), or candle, in a candlestick chart shows the minimum, maximum, open and close in the interval of selected time. The body of the candle stands between the opening and the closing, while the line (called “wick” or “wake”) is between the minimum and the maximum.
If the closure of the spark plug N is greater than the opening of the spark plug N, the body of the spark plug is in blue. If, on the contrary, the closure of the N is smaller than the opening of the N the body will be red. The candles simply make it easier to see if the trading period tends to rise or fall.
ADD AN INDICATOR
Examining a candlestick chart can already give some useful information to make a trading decision, but many traders add to this basic chart one (or more) technical indicators to further support the decision. These tools are useful for the trader, as they help him to track price trends and predict future price trends. The FXCM trading station is equipped with over thirty of the most widespread indicators, already preloaded. There are then over 600 indicators among the most widespread or specialized that can be downloaded via the web. To load one, simply create a chart, then press the right button to choose “add a marker”.
DRAW A TRENDLINE
Prices may have a tendency to grow (called “bullish”), to remain constant (called “lateral”) or to decrease (called “bearish”). A “trendline” helps the trader to visualize the direction in which the trend moves (as a rule the trend lines represent resistances and DYNAMIC supports). Until there is evidence of a break in a trend, the trader can logically expect that the trend will continue. The trend lines are drawn with the “add line” tool. Usually the trend lines are traced by connecting two or more maxima (dynamic resistance line) or two or more minima, (dynamic support line).