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Interpreting a forex chart is vital to a forex trader’s business, as it gives you the vital picture of how currencies are doing at any point of time in the markets. By mastering the charts, you could see if a currency were getting stronger or weaker and then take a trade related decision. A forex chart is created for a currency pair like the EURUSD or USDJPY and for any other currency pair you get to see in your trading platform. In simple terms, it shows the prices of the currencies concerned in relation to one another over a period of time. For instance, the EURUSD chart would tell you how the US dollar and EUR moved against one another over the period of time for which the chart was plotted.
So now you have a chart before you. What does this chart show you?
Look along the base of the chart and you can see the timeline that can be for instance divided into 15 minute, one hour, one day, one week, or longer time periods. Next have a look at the right side of the chart. What do you get to see? Running up the right-hand side of the chart you can see incremental values which normally run from a little below to a little above the lowest and highest prices reached during the period reckoned with in the chart. For instance, for a EUR/USD chart the values may run from 1.3532 at the bottom to 1.3572 at the top.

What is the difference between using charts in trading stocks and in forex trade?

It is possible that you must have used a stock chart, and so you could be telling yourself, “what the heck, if I can sort out a stock chart, I could sort out a currency chart too.” But there are some basic differences between stock charts and currency charts. If you look at a currency chart you will recognize that it doesn’t show any trading range. But what it does indeed tell you is the formation of strong currency trends. That apart, in stock charts hundreds of stocks are probably analyzed, but that’s not the case with currency charts. You have fewer numbers to boggle you down. All of this means that you have got to go a different way dealing with currency charts. In fact you could also buy yourself free charting software, and there are lots of them around.
To start off it is better you analyze and dissect the chart of any one currency pair. First you see the price. How does that come about? It is the net result or the outcome of the actions taken by the participants in the forex market. So you have an idea of how the price comes about. Now when buyers and sellers start dealing in currency, particularly in the inter-bank market this creates a change in price or you could say a price movement comes about. So when you look at a chart, what you are seeing at that point is the reflection of the sum total of the fundamental and psychological factors at play in the market. Therefore any chart pattern that comes up before you should be correlated to the underlying sentiment of the markets. Once you have this analytical bend of mind, forex charts can do wonders to your trading strategy.
If you click on the price bar or candlestick pattern in any chart, usually a chart window opens out giving you the Highest Price, Lowest Price, Opening Price and Closing Price (or last price). Apart from the simple line chart, you are more likely to encounter the Bar and the Candlestick-chart patterns in currency charts.
Always keep in mind that the highest point of the bar represents the highest price that occurred during that time period. Similarly the lowest point of the bar indicates the lowest price during the same period. Often, regular bars have a small dot on the left side of the bar indicative of the opening price during the period and the small dot on the right side represents the closing price during the period.
Candlestick chart patterns are a Japanese novelty and they represent almost the same price information as Price bars. The only difference is, the difference between the open and close, which is displayed with a color inside. Red color means that the close was lower than the open, and blue color means that the close was higher than the open. The candlestick charts have been the subjects of a lot of interpretations, and you could get easily confused. So it’s best to know just the bare basics.

What about chart time frames and chart intervals?

Chart time frame means, the duration of time that passes between the “open” and the “close” of a bar or candlestick.
For instance you could get a 1-hour time frame currency chart of a particular currency. And this chart could be for over a 2-day period, 10-day period or even a thirty-day period. You can use these charts over long-term time intervals to figure out the trend. But the charts over short-term time intervals are used to figure out both entry and exit points.
Perhaps the most important thing that you have to understand as far as forex charts go is the fact forex charts are indeed the lifeblood of forex trading. You simply can’t do without the charts. If you don’t use the charts, it just means that you are trading forex blind, something you definitely ought not to be doing.

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