It is important when trading on the FX market that you have the knowledge necessary to understand the movements of the various currencies. The best way to do this is through you studying Forex charts.
These charts are in fact eh primary tool used by any one who trades on the Foreign Exchange market to help them see any kinds of abnormalities or patterns to it. By being able to see such it is often possible for them to be used to help forecast any possible movements to the market in the future. For those of you who would like to see a better return on their investment then using these charts is crucial.
There are many different types of charts people will look at when trading on the FX market however the ones most commonly used are as follows.
1. Candlestick Chart – This one not only shows the opening and closing prices but also the highs and lows. Plus this chart shows you what the rates are. The chart looks like a candlestick but comes with a wick at both ends.
2. Bar Chart – This one is much simpler in format and shows the movement of the various currencies. So it will only show you the price.
3. Point and Figure Chart – Looks very similar to the previous chart discussed, but with this one the use of Xs and Os helps to show any change in direction of the currencies price.
4. Line Chart – This one shows you the exchange rate in relation to any particular pair of currencies at a particular time.
Today you cannot only look at FX charts on the TV or in newspapers but also online. These charts are pretty easy to understand and look similar to those normally used for those who choose to trade on the stock market.
It is important that you learn how to read these charts correctly and below we offer a couple of tips you may find useful.
When it comes to reading FX charts properly make sure that you always check what time frame is being displayed. The problem is that many trading systems tend to use a number of different time frames in order to help determine when entry into a trade should occur.
The best way to ensure that you are looking at the right time frame when reading the charts is to set them up with the right time frames and indicators relating to the system you are using.
Another thing to remember is that most of these FX charts display the Bid price rather than the asking price on them. What you need to remember is that when you buy at the Ask price this is the much higher one of the 2 in any spread.
If you are intending to use the FX chart price to determine when you should sell remember to take into account that some slippage may occur. So although the original price to sell at may be 1.330, it could be somewhat less once the trade has been completed.
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