A forex charts gives you live feed of the information you need on a particular currency pair. This is vital in the foreign exchange market since you need to be updated on the status of all of your currency pairs. The chart was created to give traders and investors an easier time to read and analyze data about different currencies.
A forex charts could also come with a bunch of indicators to make reading the chart an easier job. Each indicator has its own special purpose and it is up to the trader or investor which indicators they want to use.
Common Chart Indicators:
RSI – Relative Strength Index
This indicator is one of the most used indicators in the foreign exchange market. The RSI indicator measures all the up-moves and down-moves and it then normalizes the calculation so that the resulting index will show an answer ranging from 0-100.
Stochastic Oscillator
This indicator is used to indicate overbought/oversold conditions on a scale from 0-100%. In a Stochastic Oscillator chart, two lines are produced to indicate the overbought or oversold conditions.
MACD – Moving Average Convergence Divergence
The MACD line is the resulting difference between two exponentially moving averages. Another line is present in this chart and this is the signal or trigger line. This line records the exponentially moving average of the MACD line. If these two lines meet, it means that there will be a change in trend.
Gaps
This chart thrives on the lack of activity in the trading platform. The gaps are spaces that represent a point in the trade day that no trade took place. There are different types of gaps that you must learn how to read. The up gap is formed when the lowest trading point of a certain day is higher than the highest trading point of the previous day. The down gap happens when the highest point of the day is lower than the lowest point in the previous trading day. You never want to encounter a down gap because it is an indication that the market is unstable.
Tips on How to Read a Forex charts
1. A chart that shows that it is going upwards indicates that you should buy the terms currency since it is weaker compared to the base currency. And this is true vice versa. If you see a chart in the downwards direction, you should sell because the terms currency is strong compared to the base currency.
2. Start from the biggest time frame and narrow it down to the smallest time frame. Be careful about analyzing the right chart from the correct time frame. Read the time frame first before starting or you might end up wasting your time reading something useless.
3. From the 5-minute forex charts, you can determine the trend from hereon. Depending on the slope of the moving averages, you can deduce from the 5-minute chart if it is going to be a minor or major trend.
Use the forex chart to the best of your advantage.