| Learning the basic skills in forex, such as how to | | | | current price of EURUSD may be 1.2055 bid and |
| read forex charts, is really important. | | | | 1.2058 ask (or offer). When you buy, you buy at |
| This is because once you have this vital skill under | | | | the ask, which is the higher of the 2 prices in the |
| your belt, it will be a lot easier and quicker when | | | | spread, and when you sell, you sell at the bid, |
| the time comes for you to learn and practice an | | | | which is the lower of the two prices. |
| actual forex trading system. | | | | If you use the chart price to determine an entry |
| By the time you finish this article, you'll learn how | | | | or exit, realise that when you place an order to |
| to read forex charts, as well as know the pitfalls | | | | sell when the chart price is say 1.330, then this is |
| that can occur when reading them, especially if | | | | the price that you'll sell at assuming no slippage. |
| you haven't traded forex before. | | | | If on the other hand, you place an order to buy |
| Firstly, let's revise the basics of a forex trading as | | | | when the chart price is the same price, then you'll |
| this relates directly to how to reade forex charts. | | | | actually buy at 1.3333. A forex system will often |
| Each currency pair is always quoted in the same | | | | determine whether your orders will be placed |
| way. For example, the EURUSD currency pair is | | | | simply according to the chart price or whether |
| always as EURUSD, with the EUR being the base | | | | you need to add a buffer when buying or selling. |
| currency, and the USD being the terms currency, | | | | Also note that on many platforms, when you're |
| not the other way round with the USD first. | | | | placing stop orders (to buy if the price rises |
| Therefore if the chart of the EURUSD shows that | | | | above a certain price, or sell when the price falls |
| the current price is fluctuating around 1.2155, this | | | | below a certain price) you can select either "stop |
| means that 1 EURO will buy around 1.2155 US | | | | if bid" or "stop if offered". |
| dollars. | | | | 4. Realise that the times shown on the bottom of |
| And your trade size (face value) is the amount of | | | | forex charts are set to the particular time zone |
| base currency that you're trading. In this example, | | | | that the forex provider's charts are set to, be it |
| if you want to buy 100 000 EURUSD, you're | | | | GMT, New York time, or other time zones. |
| buying 100 000 EUROs. | | | | It's handy to have a world clock available on your |
| Now let's have a look at the 5 important steps on | | | | computer desktop in order to convert the |
| how to read a forex chart: | | | | different time zones. This is important when |
| 1. If you buy the currency pair, that is, you're long | | | | you're trading major economic announcements. |
| the position, realise that you're looking for the | | | | You'll need to convert the time of an |
| chart of that currency pair to go up, to make a | | | | announcement to your local time, and the chart |
| profit on the trade. That is, you want the base | | | | time, so you'll know when the announcement is |
| currency to strengthen against the terms | | | | going to happen, and therefore when you need to |
| currency. | | | | trade. |
| On the other hand if you sell the currency pair to | | | | 5. Finally, check whether the times on your forex |
| short the position, then you're looking for the | | | | charts corresponds to when the candle opens or |
| chart of that currency pair to go down, to make | | | | when the candle closes. Your charting software |
| a profit. That is, you want the base currency to | | | | may be different to someone else's in this way. |
| weaken against the terms currency. | | | | The reason I mention this, is that if you need to |
| Pretty simple so far. | | | | trade major economic announcements, either by |
| 2. Always check the time frame displayed. Many | | | | entering a trade based on the movements that |
| trading systems will use multiple time frames to | | | | happen after the announcement, or to exit a |
| determine the entry of a trade. For example, a | | | | trade before the announcement in avoid getting |
| system may use a 4 hour and a 30 minute chart | | | | stopped out during it, then you need to be precise |
| to determine the overall trend of the currency | | | | (to the minute!) as these trades are performed |
| pair by using indicators such as MACD, | | | | according to what happens at the 1 minute |
| momentum, or support and resistance lines, and | | | | immediately after the announcement, not the |
| then a 5 minute chart to look for a rise from a | | | | candle afterwards! |
| temporary dip to determine the actual entry. | | | | So there you have it. |
| So ensure that the chart you're looking at has the | | | | You now have the 5 essential keys to how to |
| correct time frame for your analysis. The best | | | | properly read forex charts, which will help you to |
| way to do this is to set up your charts with the | | | | avoid the common mistakes which many forex |
| correct time frames and indicators on them for | | | | beginners make when looking at charts, and which |
| the system you're trading, and to save and reuse | | | | will speed up your progress when you're looking |
| this layout. | | | | at forex charting packages, and forex trading |
| 3. On most forex charts, it is the BID price rather | | | | systems that you want to trade! |
| than the ask price that's displayed on the chart. | | | | Now that you know this, practice looking at forex |
| Remember that a price is always quoted with a | | | | charts with each of these 5 points in mind. |
| bid and an ask (or offer). For example, the | | | | So get to it! |