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    You are at:Home»Analysis»How To Analyze Forex Charts: The Ultimate Guide

    How To Analyze Forex Charts: The Ultimate Guide

    April 5, 2023Updated:April 23, 20234 Mins Read Analysis John WangubaBy John Wanguba
    How To Analyze Forex Charts The Ultimate Guide
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    Forex charts are an integral tool for traders who want to analyze and make informed decisions about the market.

    The market charts are used in determining the trend and direction of currency pairs over time, offering traders a visual representation of the market’s movements.

    Nonetheless, for beginners, forex charts can be quite intimidating and confusing. This extensive guide will help in explaining how to read and analyze forex market charts and enable traders to make sense of the market’s movements.

     

    Comprehending What Forex Charts Entail

    Forex charts comprise two axes: the horizontal x-axis and the vertical y-axis. The y-axis represents the price of the currency pair while the x-axis represents time.

    Traders and short-term investors use these market charts to identify patterns and trends that form in the market. Hence, they can predict the forex market’s future price movements letting them execute profitable trades.

    Various types of forex charts are available. Nevertheless, the most commonly used are bar charts, line charts, and candlestick charts.

    Line Charts

    Line charts are the most basic type of forex charts. They accurately plot the closing price of a currency pair over time, joining the dots with a straight line.

    Line charts are handy in the identification of market trends. Nevertheless, they do not offer advanced information when compared with other forex charts.

    Bar Charts

    Bar charts offer more extensive information than line charts. These forex charts plot the low, high, and closing prices in the market for a currency pair for a specific time. Every bar represents a particular period, 30 minutes, an hour, four hours, or a day.

    Notably, the top of the bar represents the highest price while the bottom of the bar represents the lowest price the currency pair drops to. The horizontal lines on both sides of the bar represent the closing and opening prices.

    Candlestick Charts

    Candlestick charts have become the most popular forex charts since they plot the low, high, and closing prices of currency market pairs for a particular time.

    Every candlestick represents a particular period, such as an hour or a day. In that context, the body of the candlestick represents the closing and opening prices, while the wicks that form represent the low and high prices.

    Candlestick charts are quite useful in the identification of patterns and trends that form in the market. They also offer extensive information about the market’s volatility, with longer wicks meaning that there is great volatility.

    candlestick charts

    Analyzing Market Charts

    To read and analyze forex charts, traders need to comprehend what various elements of the chart entail, including time, price, and indicators.

    Market Price

    The y-axis of any forex chart represents the price of the currency. Traders must understand the scale of the y-axis to ensure that they interpret the market chart precisely.

    Notably, the scale can be logarithmic or linear, and the traders must know which one they will use to interpret the market chart correctly.

    Time

    The x-axis in any forex chart represents time. Traders have to pay attention to the time represented by every bar or candlestick.

    For instance, a daily chart has one candlestick or bar representing each day, while an hourly chart has a bar representing every hour.

    Indicators

    Forex market charts can feature different indicators, like MACD, moving averages, and RSI. The indicators are mostly used in the identification of market patterns and trends, giving traders more information to make informed decisions.

    For instance, moving averages represent the average price of a currency pair within a particular period. In most cases, the traders use moving averages to determine the trends in the market and find the best time to sell or buy a currency pair.

    MACD identifies changes in momentum in the forex market. It is carefully calculated by subtracting the 26-day exponential moving average from the 12-day exponential moving average.

    RSI identifies oversold and overbought conditions in the market. It determines the strength of a currency pair’s price action over a particular period.

    The Takeaway

    Analyzing forex charts is an integral skill for traders to make informed and educated decisions about the market. Traders have to understand the various types of charts available, including line charts, bar charts, and candlestick charts to determine what works best for them.

    Disclaimer - The content on this website is not financial advice, where aggregated from other websites we have credited each author with a link to source content. Some of the posts (not all) on ForexFounder.com are guest posts or paid posts that are not written by ForexFounder.com authors and the views expressed in these types of posts do not reflect the views of ForexFounder.com. Post under the label Forex Cable are guest posts. We do not represent these services, brands and companies – meaning that any disputes you may have with brands or companies mentioned on our blog will need to be taken care of directly with the specific brands and companies. The responsibility of our readers who may click links in our content and ultimately sign up for that product or service is their own.
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    John Wanguba

    Wanguba Muriuki is an Editor at Large for the Forex Founder and author of the book- “The Exploitative Intrigues of Cryptocurrency Scams Explained” He is also a passionate creator who sees every aspect of life from a written perspective. He loves Blockchain, Cryptocurrency, Technology, and Traveling. He is a widely experienced creative and technical writer. Everything and everyone is describable. The best description is written.

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