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Understanding Forex Charts

Forex traders have developed several methods for attempting to figure out the direction of a currency pair. Fundamental traders may read news to see how interest rates, economic growth, employment, inflation, and political risk affect the supply and demand for currencies. Technical traders use charting tools and indicators to identify trends and important price points of where to enter and exit the market.

Candlestick Charts

The daily candlestick line contains the currency’s value at open, high, low and close of a specific day. The candlestick has a wide part, which is called the “real body”. This real body represents the range between the open and close of that day’s trading. When the real body is filled in or black, it means the close was lower than the open. If the real body is empty, it means the opposite: the close was higher than the open.

candlestick

BID Price

ather than the ask price that’s displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.

The Time Frame Of The Currency Chart

One of the most important steps in using currency charts, or any other kind of financial chart, is to set a specific time frame. The values that you view are only relevant to the specific time frames that you establish for them. With a paper chart, you can crop the chart for your specified time frame, where online tools often enable the user to change the view to a specific time frame, for example, 1 day, 5 days, 1 month, 3 months, 6 months or 1 year.

The Line Chart

The line chart gives you a good snapshot of market direction by connecting a line from one closing price to the next (You can set them to show open, high or low prices too, but the closing price is most popular). Most traders put a greater emphasis on the closing price of any trading instrument, so the line chart can give you a meaningful view of market movement over a period of time.

Trendlines

As for this part of Forex chart analysis, trendlines demonstrate a particular charting technique in which a line is added in order to show the trend in a currency pair. Frankly speaking, drawing a trendline is just as easy as drawing a straight line that follows an overall trend. Additionally, trendlines can be used to define trend reversals.

An upward trendline is actually drawn at the lows of an uptrend. Likewise, a downtrend trendline is drawn at the highs of the downward trend.

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