Knowing how to read a forex chart can be really helpful in understanding the market, regardless of whether you are a professional trader, want to make a small investment or are just an observer. One good way to understand and come to grips with the changes in the market is by looking at charts produced. These assess different aspects of the forex market, providing information for you to track changes and developments within the foreign exchange market.
Opening Forex Price Chart
A common form of chart is the opening price chart. This is particularly important in providing a basis of the prices for currencies on the market. To manage the opening price chart you will need to select the price currency you want to investigate, by choosing the appropriate currency pair, for example this could be EUR/USD, GBP/YEN or any number of options. You then need to chose a period and specify a data range. The period is the time interval between the two price updates. The data range is the amount of data the chart will populate, so for example if you wanted the full year of data you would choose to set the data range to one year.
This will then provide you with a chart to map the section of time you have indicated, helping you to read changes in the market.
A common default chart type is called a ‘candlestick’ chart. This is frequently used as an indicator of currency prices over a specific range in the forex market. The ends of the candlestick represent the beginning and the close of the selected section. The prices for the open and closing will be given, as will the highest and lowest price for the period which appear at the end of the long line, the ‘shadow’ as it is referred to. If the closing price is higher than the opening price then the chart will be blue or sometimes black. If the opposite has happened and the price is lower than the opening price, the chart will appear in pink or white.
How to Read It
The candlestick chart can be very useful with its simple format. The colour co-ordination makes it particularly easy to read straight off, in order to identify what has happened to the market overall during the chosen period. The length is also a good indicator to traders and observers; the longer the body then the more intense the buying or selling pressure.
If the candle is shorter, the price movement has been small and the selling not as pressured. The other key indicators are the upper and lower shadows which can provide valuable knowledge about the trading session. A longer upper shadow shows a session high and a lower shadow, a session low. Those candlesticks with long shadows are demonstrating that the prices in the forex market have extended well past the open and close.