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Forex Chart Reading 101
Forex chart reading can be encapsulated in the idea that a trader buys in an upward bull market, and sells in a downward bear market. Knowing the direction of the trend is critical; timing the entry of a trade into that trend is also important.
This presentation on how to read forex charts is designed for beginner traders and experienced traders who are new to forex trading. It outlines a simple, proven approach to interpreting forex charts.
• How to read forex charts
• How to identify trading opportunities
• Using charts to determine currency price trends
• Different ways to trade a specific currency pair
Trading the trend
Knowing how to read forex charts takes the guesswork out of price prediction. One simply follows the chart. Rather than predicting what will happen, you simply react to what is happening.
The trend shows what is happening; only trade the strongest trends.
A trader should be able to look at a forex chart from a distance and be able to identify the trend. The first step to setting up a chart to determine the trend and entry timing is to open a daily chart with 1-year of trading data. Then add 200-period simple moving averages. Finally, add your favorite technical indicators to time the entry into the trend.
To determine the trend, look at price action. If price action is above the 200-days simple moving average, it’s an uptrend. If the price action is below the 200-days simple moving average, it’s a downtrend. If the price action has been making higher highs and higher lows, then again it’s an uptrend. Similarly, a downtrend would have lower highs and lower lows.
If a forex chart reads mixed or conflicting trends, then it’s best to not trade until clarity returns. A good practice is to trade more than one currency pair. Monitor price action on several pairs, and choose to trade the ones with the strongest trends for the greatest likelihood of success.
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