Lesson 10 – Reading Forex Charts

If you want to get into Forex trading, you should consider Forex charts as maps which guide you and tell you how to reach your destination. The problem is knowing how to read that map and making sure you don’t get on the wrong path. There are a couple of steps you need to pursue in order to make sure that analyzing Forex trends is done right and you can read about them below.

The first thing you need to make sure is that you are capable of understanding and reading that map. The second thing you should know is how to identify the destination. Finally, you should also know how to figure out what route to take, how to plan it and how to provision for unexpected problems that might arise. Just like working out how to read a map, a chart is not that hard to understand, once you learn the basics.

If you got a demo account to practice on then you probably have access to a charting software that is free. Even if you don’t, there are plenty of other packages available online, some paid and some free. You can learn how to use them by studying a free software and you can advance to a paid software once you understand what you’re looking at when you study a chart.

How they work

A Forex chart will show you the price movements during a certain timeline. They are used especially to see what the price’s history data is. From this, brokers try to understand the future and how the market will evolve. They are using a number of different tools in order to get those predictions, but the data which is used is available to everyone, so it’s up to you to take the right conclusions from it.

When it comes to analyzing charts it’s important that you find out which type of diagram works best for you. While some people understand pie charts easier, others are more comfortable with line or bar charts. Either one will work, so you should use the type that allows you to understand it better.

When you’re reading charts, you can sometimes actually read the minds of other traders, since they will treat certain information the same way. One example is the Euro to USD pair and the values it reached during the last year. If the level which was touched is 1.35, then all the traders will try not to trade over the number from last year. They will be more cautious and this type of behavior based on chart data is known as market resistance.

One of the elements you should be able to identify is market support. This is a point where the market can’t go lower than that. If the market support is OK, the trading will remain higher than the line of support.

In order to have a valid support, the market’s support point needs to be tested for a minimum of two times. The better the support is tested, the stronger it is.

Chart Patterns

In order to understand what the movements of the market are that are next, you need to use chart patterns. The chart pattern is a strong signal and all traders have to consider them seriously before they make a decision.

The chart pattern is something which takes place on a regular basis and in most cases the result will be similar. When you see patterns like these forming that’s when the market is predictable and you can make money by using them. Since the market is very predictable in certain situations, most traders will use them to make money and in most cases they will make a profit.

Actually being able to see when the chart patterns take place is something that traders learn how to do in time. You need a bit of experience and knowledge and you can see these chart patterns yourself. While you can use special software to help you spot these chart patterns, experience is still needed.

Some examples are the symmetrical triangle, the descending triangle and the ascending triangle, which are chart patterns that can be used to predict a market breakout.