Reading forex charts to figure out the next direction that forex exchange rates would move in is one of the foundations of the whole field. Unfortunately, this is also one of the things of forex trading that can puzzle a forex trader.
The puzzling nature of interpreting forex charts is not surprising simply because it requires a trader to not only understand what drives the exchange rates but also how the market works. This is possibly why learning this aspect of trading often gives traders nightmares.
If you are also like the majority of forex trading beginners and feel that reading charts is extremely difficult, then you should know that it only takes knowing the right things to make them work for you. Here are some tips that should help you read charts like an expert and make profits through fluctuations in forex exchange rates.
The Right Chart
Before you start poring over various forex trading charts, you need to figure out what it is that you are looking to find out about future forex exchange rates. Without a preconceived agenda, your efforts towards reading charts would lead you to misconceptions.
Which forex trading charts you choose to analyse would directly depend on what you are looking to find out about the rates. For instance, you should be looking at charts showing a bull market for your chosen currency pair if you are looking to buy into the market.
On the other hand, if you are looking to sell some pairs then you will have to focus on reading those charts that show a bear market of forex exchange rates for your chosen currency.
Focusing on the Time Frame
The time frame you operate your trades under would make a huge difference in how you read charts or even which charts you read. The extent to which forex rates fluctuate varies on the basis of which time frames you are considering.
Most trading platforms would give you access to all types of time frames. Some examples of the kind of time frames you will find on most trading systems include 5 minutes, 15 minutes, one hours, four hours, and even weeks and months.
Each time frame has its purpose. The smaller time frames are ideal for beginners because they cover low risk periods for foreign exchange rates. The hour based time frames, on the other hand, tend to show the overall trend of the chosen currency pair while the extremely long term charts are best suited for experienced traders looking for big wins through exchange rate fluctuations.
Qualifying Forex Exchange Rates Settings
While all parameters matter while reading charts, the most important are the exchange rate settings of the chart. Typically, forex trading charts carry the Bid price as the default setting.
Such a chart may be useful if you are looking to sell currency pairs but if you want to buy pairs then you would have to change forex exchange rates settings to the Ask price.
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