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Forex charts play an important role as it is the only means through which a trader can map the continuous changes in the forex market and how they will benefit the investments done. Through charts, a trader can assess how the market behave and which direction to take. We also guide on the correct chart usage and this makes trading easy and profitable for the traders.
Two of the most important segments of any tutorial on foreign exchange trade are the forex charts and quotes. Charts and quotes are like languages of currency prices. Understanding and analyzing forex charts helps you to trade more effectively and avoid the pitfalls that newcomers generally make. You don’t have to be a mathematical wizard to read and understand charts and quotes but you should the fundamentals of basic mathematics like decimals on your fingertips.
The basic steps associated with reading forex charts
We at dailyforexreview.com, provide our users with the basic tips on how to read the basic forex charts like bar, line and candlesticks charts. Following steps are usually taken when analyzing a forex chart:-
- When you’re expecting the base currency in a currency pair to go up i.e. its exchange rate goes up in relation to the quote currency, you buy more of it to make a profit. Alternatively, you sell the currency pair when you speculate that the base currency might fall to minimize losses.
- Before you go into actual trade, always see and crosscheck the time structure exhibited. Most forex trading systems display many time frames for evaluating trade entry. A system uses a chart of a particular duration for reviewing the overall trend or pattern of a currency pair with the aid of indicators like momentum or MACD.
- Bid prices rather than ask prices are displayed on a majority of forex charts. Both the bid and the ask prices are cited for currency pairs. The price at which you sell is the bid price and the price at which you buy is the offered or ask price. This is one of the most valuable forex trading strategies that we at dailyforexreview.com, help you master.
Charts are used for basic technical analysis
Whenever you think of technical analysis in forex trading, you think of charts. Charting in fact is the most rudimentary form of technical analysis. Although there are different types of charts, charting mechanisms and processes, three basic types have been explained below. These charts form and make up some of the most basic forex trading tools.
When data about the varying prices and values of currency pairs is visually plotted on a graph it is called a line chart. On a line chart, the closing prices of a currency pair over a given period of time are represented as points on the graph and the points are connected.
Bar Charts are the most popular of all the basic types of charts because they are easy to analyze. The highest price ruling in a particular period is given by the topmost point and the lowest price obviously is given at the bottom of the chart. Closing prices are shown by short horizontal lines.
Just as a candle has a body and a wick, a candlestick chart too mainly comprises a body representing price closings. The wick represents the entire price spectrum for a particular period- the peak represents the highest price and the abyss the lowest price.