How To Read Forex Chart

When it comes to learning the basic skills necessary to trade Forex, one of the first things that you should learn is how to read Forex charts. Learning how to read a Forex chart is important as it is the center of foreign exchange investments. Let’s start with the obvious which is that in Forex, you are dealing with currency pairs. These will always be in pairs and they are always quoted in the same fashion. EURUSD is a currency pair between the Euro and the U.S. Dollar. In this instance, the Euro is the base currency and based on the number which is shown for the current rate, refers to how many of the terms currency you can purchase with a single base currency. If the EURUSD is listing at 1.2075, this is a mean number which basically means that the currency pair is currently fluctuating in or around that rate and if you were to invest in EURUSD then chances are you would get something close to 1.2075 U.S. Dollars for ever Euro.   

Now you will have two positions to deal with after purchasing currency. You will have the long and the short positions. In the case of the long position, you want the base currency to strengthen against the term currency. If going by the value stated earlier, then you want the EURUSD to go from 1.2075 to 1.2080 or greater. The short position on the other hand is the exact opposite. In other words you are actually trading the currency in reverse and you would want the EURUSD to go from 1.2075 to 1.2070 to make a profit. 

It is also important to keep an eye on the chart itself as you need to know what time frame the chart you are looking at is currently in. What this means is that you want to know whether you are in a 4 hour, 30 minute or even a 1 minute chart. You will need to determine which one is right for you though. 

When you finally choose to purchase a currency pair, then you will pay the “ASK” rate whereas when you sell you are paying the “BID” rate. From there you will need to determine what your entry and exit are. Obviously you want to make a profit so you will want your exit to be higher that the current “BID” if you are going for the long position or lower than the “bid” rate if you are going for the short. 

Above all, make sure that you are paying close attention to the economic announcements all over the world depending on the currency pairs you are trading. For example, if dealing with the EURUSD, then you will want to pay close attention at the times when both Europe and the Eastern United States are open for business for economic related information which can cause large changes in the value of the pair.