Money.nikaniku.com – Complete Guide How to Read Forex Charts. How to read forex charts? It’s a good idea to learn about this first before jumping into trading?
Let’s understand first how to read the correct forex chart from the following Financialku article.
Reading Forex Charts
Forex is often said to be one of the investments with a high enough risk. However, on the other hand, forex investment is also an investment that can provide very high returns.
Therefore, to be able to get the maximum profit, you need to know and learn a few things about forex. One of them is how to read the correct forex chart.
As a true forex trader, the ability to read charts is a must-have initial capital. By having the ability to read good forex charts, traders can more easily do analysis.
In addition, traders will also find it easier to practice a trading system that suits their style.
Usually, when you first start trading forex there are lots of terms and steps that you need to know.
For example, starting from what forex trading is, choosing a forex broker, opening a trading platform, to dealing with forex charts. When you first see a forex chart, it’s very natural that you feel confused about how to read the chart.
A trader needs to have the ability to read forex charts because trading takes advantage of the difference between buying and selling prices.
If a trader doesn’t know how to read forex charts, then trading strategies that require expertise to read charts will be difficult to implement.
In fact, basically forex charts are displays that show the movement of market prices. The chart is composed of bars or candlesticks which are usually formed from OHLC prices (Open, High, Low, Close).
Forex Chart Types
Before understanding how to read forex charts, first know the types of forex charts and their explanations. Here are the types of forex charts.
#1 Line Chart or Line Chart
This line chart or line chart is simple. This chart only shows the line from the Close price to the next Close price. For novice traders, it will usually be difficult to read line charts because the information required is too limited.
#2 Bar Chart or Bar Chart
This bar chart shows the OHLC (Open, High, Low, Close) more clearly where the trader can see all the numbers. Both the opening, closing, highest price, and lowest price in a certain time period.
#3 Candlestick Charts
This candlestick chart provides OHLC information like a bar chart but with a more attractive appearance. Here, the difference between a bearish and a bullish price becomes clearer than a bar chart because usually candlestick charts can be distinguished by certain colors.
For example, if the Open price is higher than the Close price which indicates a decline (bearish), then the candlestick will usually be red.
Vice versa, if the Open price is lower than the Close price which indicates an increase (bullish) then the candlestick is green. Usually, this candlestick chart is the chart most often used by forex traders.
How to Read Forex Charts Correctly
This time the Finansialku rubric will share, how to read forex charts correctly. Here’s how to read forex charts correctly.
#1 Observing Price Movement Patterns
You need to adjust the pattern of price movements to the type of order you are going to place. If you want to buy then focus on the currency pair whose graph is on the rise.
Vice versa, if you want to sell then look for a currency whose graph is experiencing a decline.
#2 Checking the Time Frame Used
When you see very volatile price movements, you should not panic and rush into making decisions. It’s times like these that you have to control your emotions. What you should do is carefully check the chart you are using.
Each time frame has its own characteristics and needs to be adapted to your trading system. Various trading systems in circulation will be effective when used on certain time frames.
For example, there are trading systems that use 4-hour and 30-minute time frames to better determine currency trends.
Don’t forget to also take advantage of indicators that show trends such as the Moving Average (MACD), momentum, as well as support and resistance levels.
For those of you who use a scalping strategy, using a 5-minute chart to see currency movements can also be done. You need to know that trading on a time frame that is too low tends to generate more fake signals.
That way, it takes very good money management and discipline so as not to damage the financial condition due to wrong trading. Therefore, you should make sure the chart looks different on the same time frame as your analysis.
In addition, you can also focus on 1 time frame for entry so that the trading process can be more focused. In this case, trading on the daily time frame is widely chosen by novice traders.
#3 Paying attention to the applicable spread
The thing you need to pay attention to when reading forex charts is to pay attention to the spreads. What are spreads? Spread is the difference between the selling price (bid) and the buy price (ask) or sell quotes and buy quotes.
This spread is the determining factor whether the take profit is executed correctly or not. Therefore, at the time of open buy, make sure the price is in the bid area. Vice versa, when open sell, the price is around the ask area.
#4 Checking the Displayed Time Zone
You also need to pay attention to the time zone displayed at the bottom of the Forex chart. Usually forex charts are set based on certain time zones. For example GMT time, New York time or other time zones.
The problem that often occurs in reading forex charts is how to distinguish local time from server time when following news announcements. To avoid missing news and confusion about the time zone, you can outsmart it by converting the announcement time to local time.
#5 Make Sure Your Internet Is Connected
The last step you need to do is to check your forex chart. You need to see whether the candles displayed are in accordance with the current market conditions or not.
Usually, graphics that are not connected to the internet will stagnate. This can have a negative impact on you if you as a trader are not aware of this.
As a result, traders often make mistakes when analyzing prices. If a trader only realizes after the real price has moved far, this is certainly detrimental data on all sides.
Therefore, don’t forget to always check your internet network first. Although this seems trivial but this problem can cause harm to you. Especially if you are trading in a large number of lots.
Forex Trading Success
After knowing the types and how to read the correct forex charts, now you can try to apply them.
Knowing how to read forex charts can help you maximize the profits you can get. In addition, you can also minimize some of the risks that can be avoided.