How to Read a Forex Trading Chart

In order to actively trade in the Foreign Exchange (forex) currency market, you must be able to read a forex trading chart.  The first currency listed in a pair is called the base currency.  For example in EUR/USD the first term, Euros, is the base currency.  The second term, in this case dollars, is called the term currency.  When you are buying a pair, you are buying the base currency.

When you are buying a pair, it is called being long in the position.  You want the base currency to increase in value versus the term currency.  This way you will make a profit buying.  If you are selling a pair, you are short in the position.  You want the base currency to weaken in value versus the term currency.

This is how you make a profit selling.  Many forex charts display the bid or selling price instead of the ask or buying price.  Check closely to make sure you don’t mix these two up.  The higher of the two prices is usually the ask price, while the lower is the bid.

The time frame displayed informs you of how the currency pair is currently doing.  Be careful to watch the time frame closely as different systems use different time lapses.  Anywhere from a four hour chart to a fifteen minute chart is available and can greatly affect whether you are looking at a temporary spike or dip or a longer term development.

Different time zones can also affect what chart you are looking at, so make sure you set the chart to your current time zone.  A world clock is handy to convert time announcements so you know when a major buying or selling date is approaching.

Another important tip is to check whether the times on your chart corresponds to the individual point, called a candle, on the graph.  This is vital because forex trading is a real-time, to the minute type trading.  If you are making a trade based on a market announcement, it is vital to be in the right time or else you will likely lose money.

Practicing reading forex charts is essential for ensuring you understand how they work.  If you can master reading a forex chart, you are well on your way to competing in this very fast-paced market.

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Currency Trading Strategies

If you are serious about entering the Forex market, you need to enter with a good currency trading strategy.  In fact, those that enter this market without a strategy are setting themselves up for failure.  The mechanics of the Forex market are simple enough, but making money in this market is not as easy as many make it sound.  The main currency trading strategy for traders in the past was fundamental analysis of the market and current and economic events.

This is not a bad strategy, but is is a difficult Forex strategy to implement into your trading, especially if you do not have a strong knowledge of the market or a lot of experience to back it up.  There is a lot of data to analyze in this market and not all of the data you come across will be relevant to you.

Technical analysis is the type of analysis that is more pertinent and better to use as a strategy in the Forex market of today.  Technical analysis is a strategy that is widely used by many investors and traders and is very useful.  Technical analysis is much easier to learn and use if, especially if you are a newcomer to this market.  The first technical strategy that you want to implement is the ability to identify trends and patterns in this market.

A currency price will follow a trend and this trend can be identified by looking at the patterns or history in the Forex charts that are available to you.  Price movements must also be analyzed on a constant basis.  As you watch the Forex market, you will notice that the market forces will drive currency prices up or down by economic news releases.  However, we cannot predict what economic events will occur from day to day.  Technical analysis of price movements should be generalized.

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Keep an eye on what direction the price movements are going and make your decisions based of this generalized knowledge.  Technical analysis is important to the currency price as well.  The price of a currency now and what it was in the past should all be relevant to your decisions.  However, this is not to say that you should follow all trends, as this is not always a good idea.

Whether you choose to use technical analysis as a basis for your strategy or fundamental analysis, you must enter this market with a strategy or you will not make it.  If you do not think that a technical analysis strategy will work for you, do some research on fundamental analysis.  In fact, you can even combine these two strategies and possibly create a strategy that is unbeatable.

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