How to Read Forex Trading Charts

A very common question new forex traders ask is how to read forex trading charts. Sometimes they ask about foreign currency charts or even just currency charts. First, they are all different terms for the same thing, so that's the first question out of the way!

Basically, what you see on a forex trading chart is a graph with a horizontal axis and a vertical axis on the right side. The horizontal axis shows the period of time over which the currency is being charted, and the vertical axis shows the actual price points.

Forex trading charts can be for long terms, with the horizontal axis showing dates that go back years, or over much shorter periods. You will use both types for different parts of your technical analysis.

Types of forex trading charts

The most common types of forex trading charts are bar charts and candlestick charts. The various parts of the bars or candlesticks are placed at the points where the vertical and horizontal axis intersect, which tells you the actual price at that point in time.

What to look for and how to read forex trading charts

Support and resistance levels. Click here for an explanation of these terms.

Trends. The trend of a currency price is simply the direction in which the price is moving over time. Reading trends on forex trading charts is easy:

• If the highs keep climbing higher, the trend is up
• If the lows keep dropping lower, the trend is down

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If you draw a line through the highs and lows on a forex trading chart, trends will become even clearer. There are three indications that a trend is about to come to an end, all of which will be clearly visible on the chart:

1. A break in the trendline at a point the prices begin to reverse. Prices that had been trending downward start to rise, or prices that had been on an upward trend start to fall.
2. A low point that falls above the previous major low, indicating the possible end of the downward trend.
3. A high point that falls below the previous major high, indicating the possible end of the upward trend.

When you see 2. or 3., though, you'll need to watch for a bit to be sure they actually do indicate a break in the trend or just a blip. You don't want to be entering or exiting trades on a blip!

Forex trading charts are based on historical data

It's important to understand that forex trading charts are a picture of what has already happened in the past. While that is not necessarily an indication of what is to come, you really can pretty much rely on the charts. Why? Because forex traders all around the world are watching these same charts and the trends they show, and entering and exiting forex trades based on this technical analysis.

When the price looks set to rise, lots of buyers will enter the trade, driving the price higher; when the price looks as if it is getting ready to fall, lots of traders will get out of the trade, driving the price down. So the whole process becomes a self-fulfilling prophecy, which is why it's so important to master forex trading chart analysis as part of your forex education. This is a brief rundown on how to read forex trading charts.

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