It is often said that Forex is one of the investments with a fairly high risk. However, on the other hand, investing in forex is also an investment that can provide very high returns.
Therefore, to be able to get the maximum profits, you need to know and learn some things about forex. One of them is knowing how to read forex charts correctly.
For a true forex trader, the ability to read charts is an essential initial capital. By having the ability to read good forex charts, traders can more easily do analysis.
Additionally, traders will find it easier to practice a trading system that suits their style.
In general, when you start trading in the forex market, there are a lot of terms and steps that you need to know.
For example, from what is forex trading, choosing a forex broker, opening a trading platform, to dealing with forex charts. When you first see a forex chart, it's only natural that you feel confused about how to read the chart.
A trader must be able to read charts in the forex market because trading takes advantage of the difference between the sell and buy prices.
If traders do not know how to read forex charts, trading strategies that require the skill of reading charts will be difficult to implement.
In fact, a forex chart is basically a display that shows market price movement. The chart is made up of bars or candlesticks that are usually formed from OHLC (Open, High, Low, Close) prices.
Types of Forex Charts
Before understanding how to read forex charts, one must first know the types of forex charts and their explanations. Here are the types of forex charts.
Line chart is a simple chart. This chart only shows a line between the close price and the next close price. For novice traders, it is usually difficult to read line charts because the information required is too limited.
This bar chart more clearly shows the OHLC (Open, High, Low, Close) where traders can see all the numbers. The open, close, highest price and lowest price during a given period.
Candlestick charts provide OHLC information just like bar charts, but with a more attractive appearance. Here, the difference between bearish and bullish prices is clearer than in bar charts, since candlestick charts are usually distinguished by certain colors.
For example, if the open price is higher than the close price, indicating a decline (bearish), the candlestick will usually be colored red.
Vice versa, if the open price is lower than the close price, indicating an increase (bullish), the candlestick is green. In general, this candlestick chart is the most used chart by forex traders.
How to correctly read Forex charts
This time the Financial Times column will share, how to read forex charts correctly. Here's how to read forex charts correctly.
#1 Observing Price Movement Patterns
You need to adapt the price movement pattern to the type of order you are going to place. If you want to buy, focus on currency pairs with rising charts.
Vice versa, if you want to sell, look for currencies whose charts are falling.
#2 Check the delay used
When you observe highly volatile price movements, you should not panic and rush to make decisions. It's times like this that you have to control your emotions. What you need to do is carefully check the table you are using.
Each time frame has its own characteristics and must be adapted to your trading system. The various trading systems in circulation are effective when used over certain time horizons.
For example, there are trading systems that use 4-hour and 30-minute time frames to better determine currency trends.
Remember to use trend indicators such as the moving average (MACD), momentum, as well as support and resistance levels.
For those of you using scalping strategies, it is also possible to use a 5 minute chart to see currency movements. You should know that trading on too low time frames tends to generate more false signals.
It therefore requires excellent money management and discipline so as not to damage the financial situation due to poor negotiation. Therefore, you should make sure to display different graphs on the same time frame as your analysis.
Additionally, you can also focus on a single time frame for entry so that the trading process is more directed. In this case, trading on the daily time frame is mainly chosen by novice traders.
#3 Pay attention to applicable spreads
The thing you need to pay attention to when reading forex charts is to pay attention to the spread. What is a gap? The spread is the difference between the sell (bid) price and the buy (ask) price or the sell quotes and the buy quotes.
This spread is the determining factor whether the take profit is correctly executed or not. Therefore, when opening a buy, make sure the price is in the bid zone and vice versa, when opening a sell, the price should be around the zone of request.
#4 Check the displayed time zone
You should also pay attention to the time zone displayed at the bottom of the Forex chart. Usually, forex charts are organized according to specific time zones. For example, GMT time, New York time or other time zones.
The problem that often arises in reading forex charts is how to distinguish local time from server time when following news announcements. To avoid missing information and getting lost in time zones, you can work around the problem by converting the announcement time to local time.
#5 Make sure your internet is connected
The last step to take is to check your forex charts. You need to see if the displayed candles are in sync with the current market conditions or not.
In general, graphs that are not connected to the Internet are stagnant. This can have a negative impact on you if, as a trader, you do not realize it.
Therefore, traders often make mistakes when analyzing prices. If the trader realizes this only after the real price has moved a lot, it is certainly a detrimental data for all parties.
So remember to always check your internet network first. Although it seems trivial, this problem can cause you losses. Especially if you place a trade in a large enough lot.
Forex trading success
Having known the types of forex charts and how to read them correctly, now you can try to apply them.
Knowing how to read forex charts can help you maximize the benefits you can get. Besides, you can also minimize some risks that can be avoided.