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A trader needs to have the ability to read forex charts because trading takes advantage of the difference between buying and selling prices.
If a trader doesn't know how to read forex charts then a trading strategy that requires skill to read charts will be difficult to implement.
In fact, basically a forex chart is a display that shows the movement of market prices. The chart is composed of bars or candlesticks which are usually formed from OHLC prices ( Open, High, Low, Close ).
Types of Forex Charts
Before understanding how to read forex charts, first know the types of forex charts and their explanations. Here are the types of forex charts.
1 Line Chart or Line Chart
This line chart or line chart is simple in shape. This chart only shows the line from the Close price to the next Close price . It is usually difficult for novice traders to read line charts because the information required is too limited.
2 Bar Chart or Bar Chart
This Bar Chart shows the OHLC ( Open, High, Low, Close ) more clearly where traders can see all the numbers. Both the number of opening, closing, highest price and lowest price in a certain time period.
3 Candlestick Charts
This candlestick chart provides OHLC information like a bar chart but with a more attractive appearance. Here, the difference in bearish and bullish prices becomes clearer than bar charts because usually candlestick charts can be distinguished from certain colors.
For example, if the Open price is higher than the Close price which indicates a decline ( bearish ), then usually the candlestick will be red.
Vice versa, if the Open price is lower than the Close price, which indicates an increase ( bullish ), the candlestick is green. Usually, this candlestick chart is the chart most often used by forex traders .
How to Read the Correct Forex Charts
This time, my financial section will share, how to read forex charts correctly. Here's how to read forex charts correctly.
1. Observing Price Movement Patterns
You need to adjust the price movement pattern with the type of order you are going to place. If you want to buy , focus on the currency pair whose chart is increasing.
Vice versa, if you want to sell then look for the currency whose chart is decreasing.
2. Checking the Time Frame Used
When you see very volatile price movements , you shouldn't panic and rush into making decisions. It is at times like these that you have to control your emotions. What you should do is carefully check the charts you are using.
Each time frame has its own characteristics and needs to be adapted to your trading system. Various trading systems in circulation will be effective when used at certain time frames .
For example, there are trading systems that use 4-hour and 30-minute time frames to better determine currency trends .
Don't forget to also take advantage of indicators that show trends such as Moving Average (MACD), momentum, as well as support and resistance levels.
For those of you who use a scalping strategy , using a 5 minute chart to see currency movements can also be done. You need to know that trading at a time frame that is too low tends to generate more fake signals.
That way, very good and disciplined money management is needed so as not to damage financial conditions due to wrong trades. Therefore, you should ensure that the chart displays differently on the same time frame as your analysis.
In addition, you can also focus on 1 time frame for entry so that the trading process can be more focused. In this case, trading on the daily time frame is chosen by many novice traders.
3. Watching Applicable Spreads
The thing you need to pay attention to when reading forex charts is to pay attention to the spread . What is a spread ? The spread is the difference between the selling price ( bid ) and the buy ( ask ) price or sell quotes and buy quotes.
This spread is a determining factor whether the take profit is executed correctly or not. Therefore, when you open buy , make sure the price is in the bid area . Vice versa, when the open sells , the price is around the a sk area .
4. Checking the Time Zone Shown
You also need to pay attention to the timezone which is displayed at the bottom of the Forex chart. Usually forex charts are arranged according to a specific time zone. For example GMT time, New York time or other time zones.
The problem that often occurs in reading forex charts is how to distinguish local time from server time when following news announcements. To avoid lagging the news and confusion about the time zone, you can work around this by converting the announcement time to local time.
5. Making Sure Your Internet Is Connected
The last step you need to take is to check your forex charts. You need to see if the can d le shown are in accordance with the current condition of the market or not.
Usually, graphics that are not connected to the internet will be stagnant. This can have a negative impact on you if you as a trader are not aware of this.
As a result, traders often get it wrong when analyzing prices. If new traders realize after the real price has moved far, this is certainly detrimental data on all sides.
Therefore, don't forget to always check your internet network first. Even though this seems trivial, this problem can cause harm to you. Especially if you are trading a large enough lot.
Successful Forex Trading
After knowing the types and how to read the correct forex charts, now you can try to apply them.
Knowing how to read forex charts can help you maximize the profits you can get. In addition, you can also minimize some of the risks that can be avoided.