Understanding Forex Charts (the basics)
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Understanding Forex Charts (the basics).
Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.
And your trade size is the amount of base currency that you're trading. In this example, if you want to buy 100,000 EURUSD, you're buying 100,000 EUROs.
If you buy the currency pair, that is, you're long the position, realize that you're looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency. So in the case of the EURUSD the Euro would be strengthening against the U.S. dollar.
On the other hand if you sell the currency pair to short the position, then you're looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.
Bars Charts:
The most common types of price bars, used in FOREX trading, are the Bar Chart and the Candlestick chart:
Price bars are a linear representation (a line) of a period of time. This enables the viewer to see a graphic representation summarizing the activity of a specific time frame. Each bar has similar characteristics and tells the viewer several important pieces of information for the period of time that each bar represents:
H = Highest Price
L = Lowest Price
O = Opening Price
C = Close Price (or Last Price)
First, the highest point of the bar represents the highest price that was achieved during that time period. The lowest point of the bar represents the lowest price during the same period. Regular bars display a small dot on the left side of the bar which represents the opening price of the period and the small dot on the right side represents the closing price of the period.
Candlesticks - Japanese Candlesticks, or simply "Candlesticks" as they are now known, are used to represent the same information as Price bars. The only difference is that the difference between the open and close form the body of a box which is displayed with a color inside. A red color means that the close was lower than the open, and the blue color represents that the close was higher than the open.
If the box has a line going up from the box it represents the high and is called the wick. If the box has a line going down from the box, it represents the low and is called the tail.
Chart Intervals & Time Frames:
A chart Time Scale & Period, or time frame, basically refers to the duration of time that passes between the OPEN and the CLOSE of a bar or candlestick. Our system uses 5 minute bars.
On most forex charts, it is the BID price rather than the ask price that's displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.
The spread is the distance between the bid and the ask, measured in "pips". a PIP is the smallest unit a currency can be traded in. The actual value of a pip is not a set price. Without going into too much detail if you are trading a standard lot of the EURUSD, a pip is worth $10. If you are trading a mini lot of the EURUSD, a pip is worth $1. Some brokers allow for "incremental pips" (a movement of 1/10 of a pip). If you are unsure about this always discuss with your broker/brokerage, and consult the documentation of your trading platform, before trading.
While Forex trading allows you to leverage more funds than you actually have, this can be a double edged sword. While you can make profits on funds that you leverage (rather than own), you can also have losses amplified as well. You must educate yourself to know when to enter and exit the market and what kind of movements to anticipate. Also, it's never a good idea to "bet it all on one hand". Trading conservatively is always best... for monetary reasons and for psychological reasons (more on this in the next section). If you are unsure about leverage and a sensible position size based on your account and risk-tolerance level then discuss with your broker/brokerage, and consult the documentation of your trading platform, before trading.
The information you just read is an excerpt from the Forex Key System found at: http://www.forexkeysystem.com/ Visit forexkeysystem.com for free information that reveals the high probability entry in any market.
Understanding Forex Charts (the basics).
Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.
And your trade size is the amount of base currency that you're trading. In this example, if you want to buy 100,000 EURUSD, you're buying 100,000 EUROs.
If you buy the currency pair, that is, you're long the position, realize that you're looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency. So in the case of the EURUSD the Euro would be strengthening against the U.S. dollar.
On the other hand if you sell the currency pair to short the position, then you're looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.
Bars Charts:
The most common types of price bars, used in FOREX trading, are the Bar Chart and the Candlestick chart:
Price bars are a linear representation (a line) of a period of time. This enables the viewer to see a graphic representation summarizing the activity of a specific time frame. Each bar has similar characteristics and tells the viewer several important pieces of information for the period of time that each bar represents:
H = Highest Price
L = Lowest Price
O = Opening Price
C = Close Price (or Last Price)
First, the highest point of the bar represents the highest price that was achieved during that time period. The lowest point of the bar represents the lowest price during the same period. Regular bars display a small dot on the left side of the bar which represents the opening price of the period and the small dot on the right side represents the closing price of the period.
Candlesticks - Japanese Candlesticks, or simply "Candlesticks" as they are now known, are used to represent the same information as Price bars. The only difference is that the difference between the open and close form the body of a box which is displayed with a color inside. A red color means that the close was lower than the open, and the blue color represents that the close was higher than the open.
If the box has a line going up from the box it represents the high and is called the wick. If the box has a line going down from the box, it represents the low and is called the tail.
Chart Intervals & Time Frames:
A chart Time Scale & Period, or time frame, basically refers to the duration of time that passes between the OPEN and the CLOSE of a bar or candlestick. Our system uses 5 minute bars.
On most forex charts, it is the BID price rather than the ask price that's displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.
The spread is the distance between the bid and the ask, measured in "pips". a PIP is the smallest unit a currency can be traded in. The actual value of a pip is not a set price. Without going into too much detail if you are trading a standard lot of the EURUSD, a pip is worth $10. If you are trading a mini lot of the EURUSD, a pip is worth $1. Some brokers allow for "incremental pips" (a movement of 1/10 of a pip). If you are unsure about this always discuss with your broker/brokerage, and consult the documentation of your trading platform, before trading.
While Forex trading allows you to leverage more funds than you actually have, this can be a double edged sword. While you can make profits on funds that you leverage (rather than own), you can also have losses amplified as well. You must educate yourself to know when to enter and exit the market and what kind of movements to anticipate. Also, it's never a good idea to "bet it all on one hand". Trading conservatively is always best... for monetary reasons and for psychological reasons (more on this in the next section). If you are unsure about leverage and a sensible position size based on your account and risk-tolerance level then discuss with your broker/brokerage, and consult the documentation of your trading platform, before trading.
The information you just read is an excerpt from the Forex Key System found at: http://www.forexkeysystem.com/ Visit forexkeysystem.com for free information that reveals the high probability entry in any market.
