Charts with Forex

With a daily turnover of around $5 trillion, the foreign exchange or forex market is deemed as the largest financial market in the world. The forex market features more than a hundred different pairs of currencies including some of the widely accepted cryptocurrencies such as Bitcoin and Ethereum. To trade this market, forex traders use different types of trading methods, such as news trading and focus on economic data and interest rates. There are also some traders that trade based on technical indicators and chart analysis. Regardless of what methods they use, all forex traders need to know how to read a forex chart to guide them in making the correct decisions.

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So what is a forex chart? Quite simply, a forex chart is a visual presentation of the exchange rate of different currency pairs. It shows how the exchange rate fluctuates over a period of time. It should be noted there are always 2 key pieces of information depicted on a forex chart, the exchange rate and the time frame of the exchange rate movements. Apart from the price and timeframe, some forex charts also show the volume of the total transactions.

As for the types of forex charts that are normally used by forex traders to help them in the analysis of the forex market, they can be categorized into 3 main types, line chart, bar chart and candlesticks. For most traders, the candlestick chart is the most popular. This is because candlestick forex charts can hold 4 times more information than line charts and bar charts. For example apart from the highs and lows, candlesticks charts can also show the opening and closing price. In addition, the colors of the candlesticks tell us if the opening price is lower or higher than the closing price. If the color of the candlestick is green then this means that the opening price is higher than the previous day’s closing price. However if the candlestick is red, this means that the opening price is lower than the closing price.

Forex charts are normally used in conjunction with technical indicators to help the trader evaluate the behaviour of the market better. Some of these popular technical indicators include the following:

  • Bollinger Bands
    To indicate increasing or decreasing market volatility. If the space between the Bollinger bands widen, this means market volatility is increasing. However if the bands narrow, this is an indication of decreasing market volatility.
  • Relative Strength Index
    A momentum oscillator, the Relative Strength Index or RSI is used to measure both the direction of the price movements as well as its velocity.

The bottom line is, if a forex trader is to be able to trade efficiently, he needs to be able to take full advantage of all the information which a forex chart is able to provide him with.