How to read Forex Charts

Topic 4: How to Read Forex Charts Correctly

There are three Forex charts: Candlestick Chart, Line Chart, and Bar Chart. The function of a Forex chart is to show traders changes in price movement so they can make decisions based on what they see or what the indicators tell them. A trader needs to learn how to read Forex charts correctly. This article is based on the Candlestick chart because it provides the best visual representation of price action.

How to Read Forex Charts Correctly in 6 Steps

Here are the steps you need to take to read the Forex chart correctly:

Step 1: Wake Up Early

Wake up early if you want to read forex charts correctly

Wake up early to perform your morning routine. You can hit the gym, shower, take some coffee, etc. Avail yourself to the chart not later than 8:00 AM East Africa Time.

If you open the Forex chart late, you might miss nice trades.

Step 2: Select the Best Currency Pair

Once you open the candlestick chart, select the best currency pair to analyze. A good currency pair to trade is one that has printed chart and candlestick patterns that meets a trading plan’s rules.

Step 3: Choose a Longer and Shorter Timeframe

Timeframes on a Forex chart enable traders to determine the period they want to view a chart. Use a longer timeframe for directional bias and a shorter timeframe for finding an entry point.

Step 4: Distinguish the Direction of the Market

Depending on your strategy, you can use indicators, chart patterns, or candlestick patterns to determine the direction price has been trending. You will be able to find out whether the price is planning to consolidate, reverse or continue trending in the same direction.

Step 5: Find an Entry Point

Follow the guidelines in your trading plan to find a nice entry point. You can enter a trade instantly or set a pending order so the trade can be opened automatically when the price reaches a certain level.

Step 6: Find an Exit Point

An exit point is very important because it helps traders to close their positions in time to secure profits or prevent further losses. It can either be a stop loss or a take profit.

What Are Chart Patterns?

We mentioned in the steps above that you could use Charts and candlestick patterns to distinguish the direction of a Forex market. But what are chart patterns? Chart patterns are structures formed by combinations of many candlesticks. Examples include the Double Top, Double Bottom, Triangle, Head and Shoulder, etc.

What Are Candlestick Patterns?

How to read Forex Charts

Candlestick Patterns are candle structures formed based on the body, open, close, high, and low of a candle.

Green Candlesticks in the above figure indicate the price is Bullish(moving up), while the red Candlesticks indicate the price is Bearish(moving down).

Every Candlestick forms a candlestick pattern depending on its appearance. Examples of these patterns are the Bullish Engulfing Pattern, Bearish Engulfing Pattern, the hammer, etc.


Now that you know how to read Forex charts correctly, what questions do you have that you would like us to answer? Let us know in the comment box.


  • Amelia

    Amelia is a forex trader and a voice-over expert of OpWell Forex. She is passionate about trading and providing help to beginner traders.

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