Forex Trading

How to Read Forex Charts Forex Chart Analysis IG International

types of charts

Now that you know why candlesticks are so cool, it’s time to let you know that we will be using candlestick forex charts for most, if not all of forex chart examples on this site. For now, just remember that on forex charts, we use red and green candlesticks instead of black and white and we will be using these colors from now on. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid. Some traders consider the closing level to be more important than the open, high, or low. By paying attention to only the close, price fluctuations within a trading session are ignored. Achart, or more specifically, a price chart, happens to be the first tool that every trader using technical analysis needs to learn.

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After a while, you’ll not only be able to read the charts quickly, but you’ll get a sense of the typical trends and patterns and what they mean. Using a bar chart is particularly helpful if you want to look for gaps in the exchange rate. These are spots where the bar for the first period doesn’t overlap any part of the bar for the second period. On a bar chart, the high price for the interval is the top of the vertical bar. The low price for the interval is defined by the bottom of the vertical bar. For example, you could use hour-long intervals over the course of a day.

Candlestick Chart Reading Like a Pro

One of the most important parts to being able to read a Forex chart is being able to know what the current price is right now. The line chart is the easiest to plot, but also has the least amount of information of the three charts. Traders use the Relative Strength Index to identify overbought and oversold conditions in the market. We hope that this guide helped you to understand better how to read and customize Forex charts in MetaTrader 4. If you have any feedback or questions, please post them in the comments section.

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However, the most popular timeframes are the 5-minute, 15-minute, 30-minute, 1-hour, 4-hour, daily, weekly, and monthly ones. This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time.

Understanding support and resistance

There is a third form of the movement that is sideways, horizontal, or flat. Support levels are areas where prices have historically bounced off and started moving up again. Resistance levels are areas where prices have historically struggled to break through and started moving down again. When looking at many candles on a chart you can also quickly get an impression of whether the market is bullish or bearish. Self-confessed Forex Geek spending my days researching and testing everything forex related.

A simple line chart draws a line from one closing price to the next closing price. Regardless of the time period, a Candlestick represents four distinct values on a chart. CFD accounts provided by IG Markets Ltd, spread betting provided by IG Index Ltd and share dealing and stocks and shares ISA accounts provided by IG Trading and Investments Ltd. IG is a trading name of IG Markets Ltd , IG Index Ltd and IG Trading and Investments Ltd . Other ways of analysis can allow you to determine when to take a trading position or leave a trade, including the Bollinger Bands. Trend line metrics such as the Moving Average clearly help you determine how the market moves by cutting off all the noise from small price fluctuations.

time period

The following picture shows what a daily candlestick chart on the EURUSD pair looks like. A line chart also helps you see short-term trends that can affect any asset. For example, you may see a steep decline related to a selloff, and you will see the stock’s recovery shortly thereafter. You can also use line charts to track the performance of a stock over long periods of time.

This confirmation can come in the form of a break below the valley or a break above the valley . However, it’s important to note that not all high volume moves lead to trend reversals. In some cases, a high volume move may be a temporary spike in trading activity that does not indicate a significant change in market sentiment. The high and low prices are represented by vertical lines extending from the top and bottom of the bar.

How do Forex Chart Timeframes Work?

Consolidation is a period of time during which a currency pair moves within a relatively narrow range, typically between established support and resistance levels. Consolidation can occur for various reasons, such as decreased trading activity, low market volatility, or uncertainty in the market. Traders may use other technical analysis indicators to confirm a double top or bottom pattern, such as trend lines or moving averages. It’s important to note that not all double tops or bottoms lead to a significant trend reversal, and traders should always look for additional confirmation before making any trading decisions. There are several different types of Forex charts, each with its own strengths and weaknesses. The most common types of charts are line charts, bar charts, and candlestick charts.

Line are useful for showing long-term trends and identifying key support and resistance levels. However, they do not provide as much information as other types of charts. Candlestick charts are made up of individual candles that represent a specific time period. Each candle has a body that shows the opening and closing prices of the currency pair, as well as a wick that shows the highest and lowest prices reached during the period. By analyzing the size and shape of the candles, traders can gain insight into the market sentiment and potential price movements. As a forex trader, you can use these helpful indicators to identify specifically whether a currency pair is heading towards a positive or negative trajectory.

Candlestick Charts

You see, most large banks and hedge funds also watch key market levels and price action around critical levels. Once the Engulfing Bullish Candlestick formed around this crucial support level, it prompted a significant number of pending buy orders just above the high of this Engulfing Bullish Candlestick. Once the price penetrated above the high, it triggered those orders, which added the additional bullish momentum in the market. The popularity of Candlestick charts has soared among Western market analysts over the last few decades because of its highly accurate predictive features. Candlestick charts can play a crucial role in better understanding price action and order flow in the financial markets.


Technical traders choose to adopt chart tools and metrics’ forecasting abilities to define peak patterns and price ranges to enter and leave marks in markets. The bottom of a vertical bar displays the lowest traded price for that period, while the top shows the highest. Many forex charts are set to a daily time span by default, showing you the trading data over a 24-hour period. Using charts with different time frames can help you to build a more robust analysis of the market and gain a thorough perspective of the overall trend in a specific currency pair. As you can see in the image above, price action develops from left to right, so the most recent price information will appear on the right side of the chart. The marks in the x-axis represent a specific time period that may vary depending on the timeframe you choose for your chart.

For more advice, like how to understand the different candlestick formations, read on. Forex signals are bits of information that you can get about the market from a signal service, such as an app, email alert service, or texting service. Some signals may simply provide information , while others can advise you to take certain actions, like buying or selling. Get familiar with the format used by your chosen signal service so you know what the signals mean and how to use them.

If a stock is oversold or over-purchased, it fails to sustain its course, which sometimes indicates a turnaround is inevitable. You can use momentum sensors, such as oscillators, to calculate the asset price’s speed or velocity. Instances of the most widely used dynamic metrics are MACD, Stochastic or RSI. Doji candles’ importance is to indicate to investors that after a long green candle, the purchasing pressure starts to wane, or after a strong red candle, the panic selling will start to reduce. MT4 and MT5 can be highly customized with indicators and EA’s available that allow you to do pretty much anything with your trading. There are many indicators you can use in your trading to gain an edge over the market.

The dash on the left represents the opening price and the dash on the right represents the closing price. The high of the bar is the highest price the market traded during the time period selected. The low of the bar is the lowest price the market traded during the time period selected. Bar charts show the high, low, open and close for each time period which together forms a bar. The high and the low are connected with a vertical line, while a small horizontal dash is shown at the open level protruding to the left. The position of the candlesticks on the graph shows the fluctuations in the exchange rate between the two currencies over the period of time you’ve chosen.

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They provide valuable information on the movement of currency pairs, allowing traders to make informed decisions about when to enter and exit trades. However, reading forex charts can be overwhelming for beginners, and even experienced traders can struggle to analyze them effectively. In this article, we’ll explore the key elements of forex charts and provide tips on how to read them like a pro. Rejection areas can be identified by looking at a currency pair’s price chart and identifying the price level where the price has failed to break through multiple times in the past.

Therefore, always have a pre-set amount that you are ready to speculate. All inspilloveration on The Forex Geek website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee.

Technical indicators are mathematical calculations that are applied to forex charts to provide additional information. They can be used to identify trends, support and resistance levels, and potential entry and exit points for trades. If you are new to Forex trading, one of the most important skills you’ll need to learn is how to read Forex charts.

None of these are inherently better than the other, and all are used every single day by top traders in Wall Street and the City of London. 80% of retail investor accounts lose money when trading CFDs with this provider. Different candlestick patterns can provide different insights into the market, such as bullish or bearish trends, and can be used to make trading decisions. Support and resistance levels are typically identified by analyzing forex charts.

This type of chart is usually used to get a “big picture” view of price movements. When strung together with a line, we can see the general price movement of a currency pair over a period of time. With a chart, it is easy to identify and analyze a currency pair’s movements, patterns, and tendencies.

Jennifer holds a JD from Indiana University Maurer School of Law in 2006. For example, if you wanted to evaluate the strength of the US Dollar , you might look at it paired with Euros , then with the Chinese Yuan , then with the Japanese Yen . Forex chart with the Bollinger Band indicator applied.From a traditional perspective, the bands are used to highlight potential oversold and overbought areas. The amount of time shown on the chart depends on the particular timeframe you select.

  • The reverse is valid, and the diminished value of the stock is seen in red.
  • While you’ll typically see many ups and downs as you move along the X-axis, pay attention to whether the overall trend is for the exchange rate to increase or decrease.
  • The hammer candle shows sellers pushing the market to a new low and then the buyers pushing it all the way back up.
  • Chart patterns illustrate the psychology of capital markets, assuming that they have succeeded in the past, so will they work next time.
  • There are several types of forex charts, including line charts, bar charts, and candlestick charts.

The line chart also shows trends the best, which is simply the slope of the line. In our crypto guides, we explore bitcoin and other popular coins and tokens to help you better navigate the crypto jungle. As we briefly discussed earlier, the location of the Engulfing Bullish Candlestick for this particular trade was the most important factor. First, it formed around a major pivot zone, where the GBPJPY Bears had failed to break the support area in the previous two attempts. Hence, waiting for the price to penetrate above the Candlestick pattern can help you increase the odds of winning on the trade.

We review online brokers, provide tips and guides to trading, as well as news on the latest developments in the industry. Bar charts provide more detail than line charts but can be more difficult to read. Traders should always seek confirmation before making trading decisions based on high volume moves. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority.