How To Read Forex Charts

Understanding the reading of the forex charts is also a basic task that a trader should acquire. These charts could appear intense, at first, full of unusual shapes, lines and the numbers. 

However, after knowing the dynamics of the same, they can act as effective tools to indicate where you have come in the market, and where you could be in future. 

If you’re just starting with forex trading, these charts are where you’ll spend most of your time. They help you move away from guesswork and toward informed decision-making.

What Is a Forex Chart?

To begin, let’s understand what you’re actually looking at when you open a forex chart.

A forex chart is a visual representation of price movements for a currency pair over time. You’ll usually see it as a series of shapes (like bars or candles) moving across a grid from left to right. 

The horizontal axis (X-axis) represents time, while the vertical axis (Y-axis) shows price. Each data point on the chart reflects how much one currency is worth compared to another during a specific period.

For example, in the EUR/USD pair, the chart shows how many U.S. dollars are needed to buy one euro at different times. Traders use these charts to analyze trends, identify entry or exit points, and monitor the health of the market.

Types of Forex Charts

There are three main types of charts used in forex trading. Each offers a different way of presenting price data and serves different purposes depending on your trading style.

Line Charts

The cleanest and easiest one is the line chart. It plots one line which links the closing edges of a portions of currency with time. You will not see the highs, the lows, the opening prices only the closing ones.

Why use it? When it comes to identifying the trend of the market in general, then line charts are the charts to use. This would be an ideal place to have a quick look at how a currency has performed minus all the technical stuff.

Example: When the line on the EUR/ USD chart is growing consistently, then it would indicate that the euro has become stronger in relation to the dollar.

Bar Charts

Bar charts show much more information than line charts. Each bar represents a time period (like 1 hour or 1 day) and shows the opening, high, low, and closing prices - commonly referred to as OHLC data.

Each bar has a vertical line with small horizontal ticks: the left tick shows the opening price, and the right tick shows the closing price. The top of the vertical line is the highest price reached during that period, and the bottom is the lowest.

Why use it? Bar charts are great for analyzing volatility and range. They help you see how active the market was within each period.

Candlestick Charts

Candlestick charts are the most widely used in forex trading. Like bar charts, they show OHLC data, but in a much more visual and color-coded format. Each candlestick has a body and wicks (shadows).

• The body shows the difference between the open and close.

• The wick shows the highest and lowest prices during that time.

• A green or white candle means price closed higher than it opened (bullish), while red or black means it closed lower (bearish).

Why use it? Candlesticks make it easier to spot patterns and market sentiment. Traders use them to identify potential reversals or continuation signals.

Key Chart Features You Need to Understand

Once you're comfortable with chart types and timeframes, focus on learning what the chart is telling you. These are the key features every trader should know.

Trends

A trend is the general direction that a currency pair is moving:

• Uptrend: Higher highs and higher lows

• Downtrend: Lower highs and lower lows

• Sideways: Prices move in a range without a clear direction

Tip: Try drawing a trendline connecting either the highs or the lows. If your line keeps getting steeper, the trend is gaining strength.

Support and Resistance

• Support is a level where a currency tends to stop dropping and may bounce back up.

• Resistance is where the price tends to stop rising and may reverse downward.

Example: If USD/JPY keeps bouncing up from 140.00, that level is acting as strong support.

Price Patterns

Forex charts often form recognizable patterns that hint at what might happen next.

• Head and Shoulders: A reversal pattern that usually means a trend is about to end.

• Double Top/Bottom: Signals a failed attempt to continue the trend.

• Triangles: Often suggest a breakout is coming.

Learning to recognize these patterns can improve your entries and exits significantly.

Final Thoughts

It is not about predicting the future when reading forex charts, it is all about learning what is going on in the current moment and making a form of decision. You do need a bit of patience to be able to point out the trends, patterns, and key levels with your eyes; however, with practice, it will come naturally.

Things are an easy business. Keep things simple. And bear in mind: every chart is a kind of a story - it is a matter of your learning how to read it.