The Unique Finance Blog

If you have never read a Forex chart before, it may seem a little intimidating at first. But be assured that it is not difficult to learn how to read one. This is especially true if you start with a very basic chart, and do not load it up with a large number of indicators.

A Forex chart is read in very much the same way as a stock chart is read, and so if you are familiar with stock charts, you will have no problem learning how to read a Forex chart. The basic elements remain the same.

You may be given a choice as to what type of indicator to use for the actual prices. It could be a simple line, a series of bars or it could be Japanese candlesticks. If you are a beginner, I would recommend that you start off with a simple bar chart. In a bar chart, you have a series of vertical bars moving across the chart from left to right at varying heights. Each bar represents a frame of time, and the top point of the bar represents the highest price that a currency pair reached during that time frame, while the lowest point of the bar represents the lowest price reached during that same time frame. You may also have a small horizontal stub that sticks out of that bar to the left and to the right, at various points. The left hand stub represents the price at the beginning or opening of that time frame, and the right hand stub represents the price at the close of that time frame.

Once you learn how to read a Forex chart, it becomes a very powerful tool. You can vary the time frame of each bar from 1 minute or less all the way up to a whole day, or even longer. As you look at the prices as they are trending up or down, it helps to have a long time frame such as 4 hours or 1 day for each bar in order to get a grasp of the big picture. That way you get a clearer view of whether the currency pair is in an up-trend or a downtrend. Knowing the current price trend is very important in deciding whether to go long or short in the market, or whether or not to even get in the market at all.

In general, as you look at the bars moving from left to right, if the tops of the bars are getting increasingly higher, and the bottoms of the bars are getting increasingly higher as well, then you can say that the prices are in an up-trend. That is not to say that there won’t be an occasional bar where the top is lower than the one before it, or the bottom extends down lower than the previous bar. We are talking about the general movement of a whole series of bars.

The opposite would hold true for a downtrend. If the highs of each bar get lower, and the lows generally get lower, then the prices are in a downtrend. It is not too difficult to pick out a trend, due to the way that the price bars slope up or down as you look at them from left to right.

If you switch your view so that each bar represents only 1 minute or 5 minutes, you will see a lot of movement up and down for the immediate present time, and that can help you decide when to actually enter a trade. But it will not give you the long term view of what the long term trend is. You could be looking at what looks like an up-trend in a short term view with 1 minute bars, but when you expand to a long-term view with daily bars, you might actually be in a downtrend. It is important to keep that in mind as you study your chart.

If you keep these basic points in mind as you look at a Forex chart, it won’t be long before you are comfortable interpreting what you are looking at. And then, you will be ready to move on to more advanced features of Forex charting, such as adding indicators, or learning how to interpret Japanese candlesticks.

Jerry Brunet is a Forex trader, and software developer. He is the developer of a software program called The Forex-Backtester, which can be found at www.forex-backtester.com

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