How to read a forex chart

The forex chart is among the most basic tools in a forex trader’s arsenal. Simply

put, it is a graph of a particular currency pair’s performance over a given period

of time. Reading forex charts is essential to a trader’s business, so it’s important

to know how to read them and understand what they mean.

Every forex chart will be labelled with a currency pair: EUR/USD, USD/GBP, etc.

Remember, all forex trading deals with different countries’ currency in relation to

each other. The EUR/USD chart, for example, tells you how the euro and the

U.S. dollar compare.

Along the bottom of the chart is the timeline -- 15 minutes, an hour, a day, a

week, or some other period. Going up the right-hand side are incremental

amounts. For the EUR/USD chart, the amounts might be 1.2531 at the bottom,

going up to 1.2561 at the top. And of course the middle of the chart shows what

position the EUR/USD pair held at what time.

The forex chart is useful because it shows in graphic terms how a currency pair

is doing. You can see at a glance whether a currency is getting stronger or

weaker, and you can act accordingly. Choosing the time frame helps you see

very minor trends (in a 15-minute period, say) or more long-term ones (over the

course of several days, perhaps).

You can find forex charts all over the Internet, on Web sites for forex brokers,

tutors, and on other forex-related sites. Those are fine for glancing at trends now

and then. But to be a serious trader, you need to have access to charts much

more readily, without having to go to a Web site. That’s why trading software

gives you forex charts, too (you need to have broadband Internet so you can be

“always connected”). Obviously, if you’re going to be trading, you need to have

convenient access to the very latest charts.

With dozens of world currencies, there are far too many possible currency pairs

for anyone to keep track of mentally. Forex charts show at a glance what any

currency pair is up to, and good software allows you to save multiple charts as

“favorites.” Naturally you’ll want to keep an eye on the charts representing

investments you’ve already made, and it’s smart to have a few additional ones

saved, too, so you can watch for trends in currencies you haven’t traded yet. You

never know when a lucrative new opportunity is going to be revealed

 

Posted in: