Lesson 2:Trade s & Charts
HOW TO READ A FOREX CHART
Forex traders have developed several methods for attempting to figure out the direction of a currency pair price movement.
Fundamental traders may read news sources such as the Economic Calendar to see how interest rates, economic growth, employment, inflation, and political risk affect the supply and demand for currencies.
Technical traders use charting tools and indicators to identify trends and important price points of where to enter and exit the market.
But no matter what type of trader you are, you’ll need to learn how to read forex charts…
OPENING A PRICE CHART
To get started, log in to your account and go to the market watch, Next step you need to pick a currency pair, select the period and specify the data range.
The period is the time interval that the chart updates.
For example, a period set to one day (d1) means that each point on the chart represents one trading day of data.
A period set to five minutes (m5) means that each point on the chart represents five minutes of data.
The data range is the amount of data you want the chart to populate.
If you want to look at a full year of data, you’d set the data range to one year.
USING CANDLESTICK CHARTS
The default chart type is called a ‘candlestick’ chart. This chart type is used frequently in the forex market.
A bar on a candlestick chart shows the open, close, high and low prices for the selected period.
The body of the candle shows the open and close prices where the wicks show the high and low prices.
If the closing price is higher than the opening price of the previous candle, then the candlestick will be Green.
If instead the closing price is lower than the opening price of the previous candle, then the candlestick will be red.
Candlesticks simply make it easier to see if the trading period ended up or down.
ADDING AN INDICATOR
Just looking at forex charts can be helpful in making a trading decision, but many traders also use technical indicators to help them make more informed trading decisions.
These tools help a trader locate price trends and predict future price movements. The trading station is equipped with over thirty popular pre-loaded indicators.
Over six hundred popular and custom indicators are downloadable online. To add an indicator to a chart, right click on the chart and select ‘add indicator.’
GSI markets MT4 platform offers you to trade in direct connection to the market. It’s where traders buy and sell currencies and manage their accounts.
PLACING YOUR FIRST TRADE
Placing a trade is simple. All you need to do is click on the ‘sell’ or ‘buy’ price for the currency pair you want to trade from the ‘Market Watch’ window.
Step 1: Choose the asset that you would like to trade on.
Step 2: Click twice on the asset with the left button of the mouse or click on the asset.
Once with the right button of the mouse and then press on “new order”.
Step 3 :Choose the size that you would like to invest.
Step 4 :Choose the position that you would like to take “buy by market” means that you will profit from an increase of the asset or “sell by market” means that you will profit from a decrease of the asset.
Types of charts
Let’s take a look at the three most popular types of charts:
- Line chart
- Bar chart
- Candlestick chart
Now, we’ll explain each of the charts, and let you know what you should know about each of them.
A simple line chart draws a line from one closing price to the next closing price.
When strung together with a line, we can see the general price movement of a currency pair over a period of time.
Here is an example of a line chart for EUR/USD:
A bar chart is a little more complex.
It shows the opening and closing prices, as well as the highs and lows.
The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid.
The vertical bar itself indicates the currency pair’s trading range as a whole.
The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.
Here is an example of a bar chart for EUR/USD:
Take note, throughout our lessons, you will see the word “bar” in reference to a single piece of data on a chart.
A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word ‘bar’ going forward, be sure to understand what time frame it is referencing.
Bar charts are also called “OHLC” charts, because they indicate the Open, the High, the Low, and the Close for that particular currency.
Here’s an example of a price bar:
Open: The little horizontal line on the left is the opening price.
High: The top of the vertical line defines the highest price of the time period.
Low: The bottom of the vertical line defines the lowest price of the time period.
Close: The little horizontal line on the right is the closing price.
Candlestick chart show the same information as a bar chart, but in a prettier, graphic format.
Candlestick bars still indicate the high-to-low range with a vertical line.
However, in candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices.
Traditionally, if the block in the middle is filled or colored in, then the currency closed lower than it opened.
In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price.
If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled.
Here at GSI Markets Brokerage, we don’t like to use the traditional black and white candlesticks. They just look so unappealing.
And since we spend so much time looking at charts, we feel it’s easier to look at a chart that’s colored.
A color television is much better than a black and white television, so why not splash some color in those candlestick charts?
We simply substituted green instead of white, and red instead of black.
This means that if the price closed higher than it opened, the candlestick would be green.
If the price closed lower than it opened, the candlestick would be red.
In our later lessons, you will see how using green and red candles will allow you to “see” things on the charts much faster, such as uptrend/downtrends and possible reversal points.
For now, just remember that we use red and green candlesticks instead of black and white and we will be using these colors from now on.
Check out these candlesticks…GSI Marekts brokerage style! Awww yeeaaah! You know you like that!
Here is an example of a candlestick chart for EUR/USD.
The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same information appears on an OHLC bar chart.
The advantages of candlestick charting are:
- Candlesticks are easy to interpret, and are a good place for beginners to start figuring out chart analysis.
- Candlesticks are easy to use! Your eyes adapt almost immediately to the information in the bar notation. Plus, research shows that visuals help in studying, it might help with trading as well!
- Candlesticks and candlestick patterns have cool names such as the shooting star, which helps you to remember what the pattern means.
- Candlesticks are good at identifying marketing turning points – reversals from an uptrend to a downtrend or a downtrend to an uptrend. You will learn more about this later.
Now that you know why candlesticks are so cool, it’s time to let you know that we will be using candlestick charts for most, if not all of chart examples on this site.