To be a profitable in trading online, one must understand how to read the Forex charts and interpret them for achieving maximum advantages. Chart patterns and basic technical indicators have to be understood well if you really want to take the benefit of trends and patterns and predict the correct direction of the currency in future.
What are Forex charts basically?
Forex chart is just a graphical representation of the movement of currency pair and shows the movement of currency pair over a certain period of time. The choice of currency pair is yours and the Forex charts can be plotted for a big variety of currency pairs.
The time amount shown on the chart depends on the timeframe you have selected. Some Forex charts are set to 1 day timeframe, some for 1 hour timeframe and others may be for 1 week or Sunday. Some timeframes are as low as 1 minute and that is used by individuals who commit to short term trading online.
Types of charts for trading online and how to read them?
The traders in Forex have developed many types of charts to show the data for Forex trading online Basically there are 3 main types of Forex charts and they are Line, bar and candlesticks. Candlestick charts are the most popular types of charts as a candlestick is easy to read and interpret with more information.
If we compare a candlestick chart with a line chart, candlestick shows more data to the trader displaying open, close, low and high prices of the currency of a given time period. As compared to seeing just the closing price in Line chart, you can see how the price moved over a period of time in Candlestick chart. So it is relatively easy and fast to know better information about the price movements in the Candlestick charts.
In a candlestick chart, the area within the cylinder is called the Body. The body represents the difference between the opening and closing price of the currency in a given period. The color coding used is useful and if the body color is green, the opening price is lower than the closing price. But if the body is Red then it indicates that the opening price was higher than the closing price. This color coding helps in quick identification of the direction of the prices in a given day.
The black lines present on top and bottom of the cylinders are called wicks or shadows. These wicks represent the highest and lowest price level reached during the given time period.
Candlestick or bar charts can be used for making trade decisions in trading online but some Forex traders also add some technical indicators to Forex charts to provide some aid in decision making. These technical indicators help in identifying trends in future as well as locating support or resistance areas in future.