The Forex market is the most liquid and active market in the world. A huge number of transactions are carried out on it every second, and the total daily turnover is estimated at trillions of dollars. If we didn't use analytical tools like graphs, which can be visually examined and analyzed, we would have a huge sea of difficult-to-interpret numbers.
Thus, Forex charts are a visual tool for technical analysis. Using them, we can easily recognize trends, consolidations, price patterns and price action patterns.
What are Forex charts?
Forex trading involves selling one currency and simultaneously buying another in order to close the position at a later time and make a profit. Unlike stock or commodity markets, where prices are typically quoted in US dollars, the price of one currency must be quoted in every other currency due to the fundamentally barter nature of foreign exchange transactions.
Forex charts are classified by the currencies they display and the time period or timeframe they are looking at. Let's imagine that we have a 4-hour chart of the EURUSD currency pair. This means that each candle on the chart represents price data for a four-hour period. What happens within that time period doesn't matter. If we had chosen an hourly chart, each candle on the chart would have been replaced by four different candles.
There are many ways to depict price movement. For this, line charts, bar charts, candlestick charts can be used – each of them has its own advantages and disadvantages. But they all do the same thing: visually display price movement and help traders understand the market and trade for profit.
Since currencies are traded in pairs, it is not practical to draw a pure USD currency chart. Instead, we have the option of plotting the USDJPY pair or the AUDUSD pair, since one currency can only be quoted against the other. On the other hand, there are some forex charts that take a weighted average of currency pairs to get an overall idea of a currency's strength. For example, the dollar index.
Charts are the keys that will help us unlock the secrets of forex trading. Only through continuous practice can we acquire the necessary skills and experience in understanding and analyzing them. The language of forex charts is the language of currency trading. It will take you some time to master it, but then you will have endless possibilities in understanding the financial markets.
Currency pair charts
Almost all professional forex traders who work for large banks and hedge funds use currency charts to analyze the market and execute trades. Additionally, many people who are not involved in forex trading use currency charts to see quotes for the currencies they are interested in.
Currency charts allow forex traders to predict future price movements using technical analysis, including identifying key support and resistance levels. These levels allow you to find the optimal points to enter the market, as well as place stop loss and take profit orders. Some traders also draw trend lines between successive market highs or lows to find additional trading opportunities.
Which indicators to choose?
Some traders may use technical indicators such as the Relative Strength Index or RSI to identify oversold or overbought areas and then trade for price reversals. Others use technical indicators based on a moving average. Some use a combination of several indicators to generate buy or sell trading signals.
There are thousands of indicators on the market, but few of them have become popular. This is largely due to their ease of use and efficiency. There is no perfect set of indicators. Traders may change their preferences over time and adapt to changing market conditions.
It is best to limit the number of indicators used to one or two. Too much information will limit your ability to analyze the market. Taking the time to learn the nuances of your chosen indicators and chart formats will make you a more efficient and successful trader.
How to use graphs?
Your forex chart is your tool for analyzing when is the best time to enter and exit the market. The future direction of price movement is always a 50/50 guess, but with the help of technical analysis you can improve your chances of making consistent profits.
Taking the time to test your trading system on a free demo account with virtual money and real-time quotes is essential to acquiring forex trading skills. If you limit your losses and allow your profits to run, you can tilt the odds in your favor.