How to Read Forex Charts Like a Pro
Success in forex trading depends on your ability to read and analyze forex charts. In this blog post, we’ll take a look at what forex charts are, how to read forex charts, the different types of forex charts, and how to use forex charts to your advantage when trading. By the end of this post, you’ll be a pro at reading forex charts to invest in futures trading!
How to Read Forex Charts
Each bar or candlestick on a forex chart represents a unit of time, typically one day. The left side of the bar or candlestick is the opening price, while the right side is the closing price. The difference between the two is called the “body.”
If the closing price is higher than the opening price, then the body is white or green. This indicates that buyers were in control during that period of time, and prices rose. If the closing price is lower than the opening price, then the body is black or red. This indicates that sellers were in control during that period of time, and prices fell.
In addition to the body, there are also “shadows” on either end of the body. The shadow on the left is called the “wick,” while the shadow on the right is called the “tail.” The wick indicates the highest price that was traded during that period of time, while the tail indicates the lowest price that was traded during that period of time.
Now that you know how to read a forex chart, let’s take a look at some of the different types of forex charts that are available.
Types of Forex Charts
There are three main types of forex charts: line charts, bar charts, and candlestick charts. Let’s take a look at each one in more detail.
1) Line Chart: A line chart simply plots out currency pairs by connecting each data point with a line. Line charts are typically used to identify overall trends over long periods of time.
2) Bar Chart: A bar chart looks similar to a line chart but with one key difference: each data point is represented by a vertical bar instead of being connected by a line. Bar charts provide more information than line charts because they show not only where prices closed but also where they opened and how high or low they reached during that particular period of time.
3) Candlestick Chart: Candlestick charts are very popular among traders as they provide clear and concise information about market movement over short-term periods of time…which brings us nicely into our next section!
Here are some common patterns seen in forex charts:
- Head and Shoulders Pattern: The head and shoulders pattern is one of the most reliable reversal patterns out there. It forms when there is a peak (the head), followed by a higher peak (the left shoulder), followed by another peak (the right shoulder), and finally, a trough. The head and shoulders pattern is considered bearish as it indicates that prices have peaked and will likely start moving lower.
- Inverse Head and Shoulders Pattern: The inverse head and shoulders pattern forms when there is a trough (the head), followed by a lower trough (the left shoulder), followed by another lower trough (the right shoulder), and finally, an uptick. The inverse head and shoulders pattern is considered bullish as it indicates that prices have bottomed out and will likely start moving higher.
Some traders try to make things too complicated by using too many indicators or taking trades that are too complicated. This usually leads to confusion and frustration instead of profit. The key is to keep things simple by using only a few indicators and taking only high-probability trades.