What are Forex Charts used for? What are Forex charts? How to use Forex charts for trading? Charts best express the performance of an asset but they must also be known to use and set up. In order to obtain all the most useful information. And this is even more true in Forex, an acronym for Foreign exchange market, also called even more briefly FX or currency market. Forex is arguably the largest market in the world, in terms of transaction value, and includes trades that occur between large banking institutions, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. It was created in 1971 when floating exchange rates began to appear.
There is a trading activity in Forex equal to over 1,900 billion dollars per day on average. In these large volumes, small speculators (called retail traders in jargon) represent a small part of this market. They can only participate indirectly in this market through brokers or banks. The former, at least the most renowned, do not provide commissions but subtract a small percentage (the spread) from the profit. The latter instead offer trading to their customers against the payment of higher commissions.
Forex traders have developed various ways in order to identify the price direction of a foreign exchange. Traders who rely on fundamental analysis methods use research to identify how the supply and demand for a currency are influenced by various sectors: interest rates, economic growth, employment rates, inflation and risk arising from the political situation. Traders who instead rely on technical analysis use graphical methodologies and analytical indicators to identify the best trends and price levels to decide to enter or exit the market.
Generally, a good online Forex trading platform already offers clear and malleable graphs on its platform to clearly understand the performance of an asset. But if these are not sufficient and well done, you can always rely on external sites specialized in just this. Having briefly said what Forex is, let’s see what Forex charts are and how to best read them.
Forex chart as it reads
How do you read a Forex Chart on your Forex trading app? The first thing to do is click on “create chart” located at the top of the Trading Station screen. Once this is done, we must choose a currency pair, the period we intend to analyze and enter the two reference dates.
The period is the interval of the time scale that is updated on the graph. So, by way of example, if the time period we want to analyze is a single day, the graph will express an entire trading day; if you choose 15 minutes, the time frame will be 15 minutes. A month, a year, 5 years and so on. The charts are usually automatically set to a 5 minute timeframe, but we can change this to our taste. The timeframes that traders use most are 1 minute (1m), 15 minutes (15m), 1 hour (1H), 24 hours (24H). The former especially in a scalping type trading strategy.
Once we outline the type of timeframe we can use, the graph provides us with more information. For example, we will notice the following information:
O (Open) indicates the opening price of the candle
H (High) indicates the highest point the candle reaches
L (Low) indicates the lowest point reached by the candle
C (Closed) indicates the closing price of the candle
The default type of charts is called “candlestick” and is very widespread in the practice of traders. The bar that appears (of one minute, one month, one year, or any other time interval we choose), also called a candlestick in a “candlestick” chart, will thus show the minimum, the maximum, the opening and the closing in the selected time interval. A candle is made up as follows: the extremes are the opening and closing, while the line (called “wick” or “trail”) represents the minimum and maximum.
Candles are represented by two colors: red and blue. The first case occurs when the close of the N candle is greater than the open of the N candle. If, on the contrary, the close of the N is lower than the open of the N, then it will be red in color. This coloring makes it easier to see whether the trade is trending up or down.
Forex chart types
What types and how many types of Forex Charts are there? In addition to the “candle” one described above, there are others:
Line graph
This is the simplest graph and represents the price trend during a pre-established unit of time. The line graph can be useful for obtaining the following information:
trend
rises and falls
In reality, the linear chart has the flaw of not offering detailed information, so it is not used much by traders. Only to integrate the information obtained with other graphs. So as to obtain a global vision of the performance of the observed asset.
Bar chart
Unlike the previous one, the bar chart offers more detailed and useful information for analyzing the market more completely. The bar graph tells us:
trend
rises and falls
maximums and minimums
As you can see, there are no highs and lows among the things it offers. A serious flaw, since these two parameters indicate the highest and lowest values reached during the day by an asset, thus allowing us to trace the supports and resistances. Essential elements in order to understand the most probable price trend.
Above is how to read charts in general and of course it is the basis for understanding the Forex market, the basis for any strategy that you might use or even discover.
