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Trading for beginners
How to read forex charts
There are many options for the trader to know the trends of foreign exchange, commodities, and various financial instruments, but the most accurate option is to follow the chart. A trader who follows charts is called a technical trader, and he is a trader who prefers to follow chart tools and indicators to accurately determine trends and appropriate price levels to enter and exit the market.
On the other hand, we find the trader who relies on fundamental analysis, that is, he prefers to follow news that provides accurate information about economic growth, job rates, and financial policy threats to encrypted commissions.
A trader first needs to know what a chart or chart is before he can understand the advanced information about reading the chart. In short, a chart is a depiction or reflection of the exchange rates that occur between the financial instruments shown on the chart. Being able to understand a chart is an integral part of trading, as it not only helps you track current trades, but it also helps you discover future price trends and thus helps you plan your next trades.
Understand trends
When looking at the chart and observing a group of data drawn in a general direction, the trader can determine the general direction of trading for the financial instrument, which is known as Instrument Trading. Every graph or chart is different, as trends can be easily identified on most charts, while this task may be difficult or more complex on others. In general, prices move between a set of highs and lows (highest and lowest). When the trend is up, you will see a group of rising highs and lows, while you will see a group of falling highs and lows if the trend is down.
There is another direction, known as the lateral, flat or horizontal direction. It usually appears when the levels of supply and demand are close, so in this case we see that prices move forming a straight line rather than peaks and troughs.
The direction or trend, whether it is rising or falling, is determined not only on the basis of the direction in which it is moving, but also on the basis of the period of time during which this trend is taking place. There is a long-term trend, a short-term trend, and a medium-term trend, and these trends coexist with each other, and sometimes they may all appear to be in the same direction, and other times they take opposite directions. These trends are very clear and time is part of the trend lines that you see when reading a chart.
Types of charts used in trading
When trading, it is necessary to fully and clearly understand what the chart shows as well as the various information it provides. When you trade online, you will find three main types of charts that are popular in trading circles. Each chart provides a certain level of information according to the individual skills possessed by the trader.
Line chart
Line chart - It is one of the simplest types of chart and is the cornerstone for the novice trader. This chart only shows the closing price during a certain period of time and the closing price is often considered the most important element in data analysis. This is the essence of this chart, and now let's learn how a line chart is formed: This is done by linking closing prices to each other during a specific time frame. But this chart does not provide visual information or trading range, meaning we cannot see through the line chart, the lowest and highest price level nor even the opening prices.
Bar chart
Bar chart – This chart provides more detailed information compared to a line chart, as a bar chart includes several key elements of information that are added to each data point on the chart. This chart consists of vertical lines, and each line represents specific information related to trading. Through these vertical lines, we can identify the highest and lowest trading prices during a specific period of time, as well as the opening and closing prices. The shorter horizontal line represents the opening price and closing price.
The opening price is the “mark” that is located to the left of the vertical bar and the opposite is the closing price that appears on the same similar horizontal line, specifically on the right side of the bar. Understanding this chart is very simple. If the mark on the left (which is the opening price) is lower than the mark on the right (the closing price) and the column is shaded in either green, black or blue, this indicates an increase in the price and the financial instrument achieving gains. The opposite is true. When a stock declines or loses value, the column is colored red.
Japanese candlestick chart
Candlestick Chart – Once you have mastered the use of line chart and bar chart, you can move on to candlestick chart and it will be easy for you to understand since it is similar to the bar chart. The vertical lines on both candlesticks or bars represent the trading range during a certain period, while the body of the candle can have different colors representing the changes occurring in the market during a certain period of time.
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How to read forex charts
Trading for beginners
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6 min
how to read a trading chart
How to read forex charts
There are many options for the trader that enable him to know the trends of foreign exchange, commodities, and various financial instruments, but the most accurate option is to follow the chart. A trader who follows charts is called a technical trader, and he is a trader who prefers to follow chart tools and indicators to accurately determine trends and appropriate price levels to enter and exit the market.
On the other hand, we find the trader who relies on fundamental analysis, that is, he prefers to follow news that provides accurate information about economic growth, job rates, political threats, and interest rates.
AvaTrade will help you know how to read prices on charts and determine their direction accurately. We will provide you with some guidance and advice regarding reading and understanding charts in order to help you build your journey in...
First, a trader needs to know what a chart or chart is before he can understand the advanced information of reading a chart. In short, a chart is a depiction or reflection of the exchange rates that occur between the financial instruments shown on the chart. Being able to understand a chart is an integral part of trading, as it not only helps you track current trades, but it also helps you discover future price trends and thus helps you plan your next trades.
Understand trends
When looking at the chart and observing a group of data drawn in a general direction, the trader can determine the general direction of trading for the financial instrument, which is known as Instrument Trading. Every graph or chart is different, as trends can be easily identified on most charts, while this task may be difficult or more complex on others. In general, prices move between a set of highs and lows (highest and lowest). When the trend is up, you will see a group of rising highs and lows, while you will see a group of falling highs and lows if the trend is down.
There is another direction, known as the lateral, flat or horizontal direction. It usually appears when the levels of supply and demand are close, so in this case we see that prices move forming a straight line rather than peaks and troughs.
The direction or trend, whether it is rising or falling, is determined not only on the basis of the direction in which it is moving, but also on the basis of the period of time during which this trend is taking place. There is a long-term trend, a short-term trend, and a medium-term trend, and these trends coexist with each other, and sometimes they may all appear to be in the same direction, and other times they take opposite directions. These trends are very clear and time is part of the trend lines that you see when reading a chart.
Types of charts used in trading
When trading, it is necessary to fully and clearly understand what the chart shows as well as the various information it provides. When you trade online, you will find three main types of charts that are popular in trading circles. Each chart provides a certain level of information according to the individual skills possessed by the trader.
Line chart
Line chart - It is one of the simplest types of chart and is the cornerstone for the novice trader. This chart only shows the closing price during a certain period of time and the closing price is often considered the most important element in data analysis. This is the essence of this chart, and now let's learn how a line chart is formed: This is done by linking closing prices to each other during a specific time frame. But this chart does not provide visual information or trading range, meaning we cannot see through the line chart, the lowest and highest price level nor even the opening prices.
Bar chart
Bar chart – This chart provides more detailed information compared to a line chart, as a bar chart includes several key elements of information that are added to each data point on the chart. This chart consists of vertical lines, and each line represents specific information related to trading. Through these vertical lines, we can identify the highest and lowest trading prices during a specific period of time, as well as the opening and closing prices. The shorter horizontal line represents the opening price and closing price.
The opening price is the “mark” that is located to the left of the vertical bar and the opposite is the closing price that appears on the same similar horizontal line, specifically on the right side of the bar. Understanding this chart is very simple. If the mark on the left (which is the opening price) is lower than the mark on the right (the closing price) and the column is shaded in either green, black or blue, this indicates an increase in the price and the financial instrument achieving gains. The opposite is true. When a stock declines or loses value, the column is colored red.
Japanese candlestick chart
Candlestick Chart – Once you have mastered the use of line chart and bar chart, you can move on to candlestick chart and it will be easy for you to understand since it is similar to the bar chart. The vertical lines on both candlesticks or bars represent the trading range during a certain period, while the body of the candle can have different colors representing the changes occurring in the market during a certain period of time.
Candlestick chart details
Candlesticks date back to the 17th century, when the Japanese began using them when trading rice. They are somewhat similar to the American version that was created around 1900, as the two versions share the same rules.
When a trader wants to start creating and reading a candlestick chart, he must first know the data included in this type of chart, which are the highest price, lowest price, opening price and closing prices.
Japanese candlesticks
The “empty” or “colored” parts of the candle are called the body. The long, thin lines at the top and bottom of the “body” represent the highest or lowest price levels and are also referred to as shadows, wicks or tails. The line at the top of the candle body will tell you the highest closing price, while the line at the bottom of the candle body represents the lowest closing price.
The color of the candle body varies from one brokerage company to another, as it can be green or blue, which indicates an increase in the price, and if it is red, it indicates a decrease in the price. An empty candle appears to us when the closing price is higher than the opening price, which represents a buy signal for traders. While filled or colored candles give a sell signal.
When the candle body is small or large, it indicates either selling pressure among traders or buying pressure. A small body indicates that the price is moving in a narrow range and is usually treated as a hesitation chart pattern or what is known as a doji.
Doji chart
Dojis are an important part of a candlestick chart as they provide a set of information in the form of technical patterns. A doji is usually formed when the closing price of the financial instrument is approximately equal to its opening price and there is no significant price difference. The importance of the doji candle is that it provides the trader with the following information: after a long white or green candle, buying pressure begins to weaken, or after a long candle (blue or black), selling pressure begins to decline and supply and demand levels begin to equalize.
Chart analysis
One of the most reliable technical models used in chart analysis is the head and shoulders pattern.
This pattern is a reversal pattern, and when it is formed it gives an indication that the current trend will change or reverse soon. There are two types of head and shoulders pattern:
Head and shoulders pattern
Head and Shoulders at the Top: It usually forms at the top i.e. in an uptrend and gives an indication that the stock price will fall once the pattern is completed.
Head and Shoulders Below (or Inverted Head and Shoulders): It usually forms in a downward trend, and in this case it gives an indication that the stock price is about to rise once the pattern is completed.
Both models have the same main components: shoulders, head and neckline. The pattern consists of a neckline (support and resistance) that prices collide with and a second shoulder is formed. The head and shoulders pattern consists of tops and bottoms on the chart. There are also many other technical models that traders use in analysis, such as: two tops/bottoms, three tops/bottoms, Pinocchio, bullish or bearish engulfing patterns, etc.
How to integrate technical analysis tools into your charting
In order to be able to examine and read the charts clearly and comfortably, you need to add other tools to the chart, such as technical analysis, to measure the rate of market volatility and price changes. These technical indicators can help you provide clear and accurate information about the market, which may be absent with some currencies or stocks and are usually described as “oversold” or “overbought.”
In fact, the technical indicators included in your live chart, such as volume indicators, trend lines, Fibonacci levels, the stochastic indicator, and other indicators, will remove market noise, or what is called “Market Noise,” and form a clearer picture of the markets and trends that await us. In the future as traders.