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Remember all of those charts and graphs you had to learn during high school? Once you start trading Forex, all of that knowledge is finally going to come in handy. One of the basic principles in being a successful Forex trader is learning how to read charts and graphs and than applying what you learn from them into a trading strategy that will earn you profits. I bet you are wishing you paid more attention in math class now.

Learning how to read charts is really not that hard once you know what it is you are looking at. Luckily with Forex you can choose to read charts that give you averages over a specified amount of time. This simplifies the chart and eliminates much of the quick fluctuations, giving you a clearer picture of the way in which the currency is moving.

What Are Forex Charts Showing You?

Although there are different variations and types of charts you will come across as a trader, they are all showing you the movement of a currency pair during a certain time frame. This time frame varies depending on your own preference, but can be as short as minutes or the average mapped out over days and even weeks. Generally, the longer the time frame, the easier it is to read. This is what is known as moving averages.

Math and foreign exchange revisited calculations

Line Charts

A line chart is the simplistic way of graphing Forex currency prices. The lines will reflect the closing of the currency at a particular time which is displayed along the bottom of the chart. Running up the side will be listed the price. Looking at a line chart it is easy to see where the price of a currency was making a quick ascent or descent and when it made a turnaround and began either gaining or losing value.

You can set your line chart to show you opening, high, or low prices instead of the closing as well as set the time frame. As you learn how to read the chart and use its information you will figure out which settings work best for your own strategy.

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Bar Charts

A bar chart gives you a little more information in a simple format then the line chart does. Also known as the OHLC, open, high, low, close, a bar chart is a vertical line whose bottom represents the low price for that time period and top the high. On the body are two horizontal lines. The one on the left is the opening price for that currency and on the right is the closing price.

Bars are usually used in conjunction with a line graph to show how a currency pair is trending. What you will see is a series of these bars in varying sizes placed next to one another depicting a certain time frame. It takes some getting used to in order to understand the various fluctuations this type of graph is showing you, but can be very helpful in predicting movements in the market. If this type of chart reading is your preference, I recommend that you use a ruler to clearly line up the lines with the dollar amounts on the side. Otherwise it can be hard to read.

Candlestick Charts

Candlestick charts are my preferred method of graphing currency movements and the one that I would recommend any new trader to learn first. These give you the same information as the bar graph combined with the line chart, except in a format that is much easier to read.

The opening and closing price of the currency are shown in a large body known as the candlestick. On the top and bottom are skinny lines known as the wicks. These represent the currency highs and lows for that time frame. What makes the candlestick chart easier to understand is that the stick, or real body, is colored if the currency is losing value and left white if it is gaining value. This means that on a dark colored stick the open will be the top and close on the bottom while a white will have the open on the bottom and close on the top since its value increased in that time period. Some programs will use colors to represent up and down trends in the candlestick, but you can usually choose settings that make reading the chart easiest for you.

What makes the candlestick such an appealing way of charting with Forex is that the size or shape of the body and wicks can tell you a wealth of information. For example, a stick that has no wicks coming off of either end shows you that the average price of that currency never went above or below its open and close. A very short body shows that there was hardly any activity with that currency for the time frame, while an elongated body shows that there was a lot of activity resulting in a big difference between the open and close.

Using Charts

To get the best use of charting with Forex trading, no matter which type you use, you should be looking at least three at a time. A short time frame, a medium one and one chart that looks at the currency pair over a few days. This combined knowledge will give you both a broad and magnified view of the pair and help you to make better entry and exit decisions.

What you are looking for is trends in the fluctuations of the currency’s value. Is there always a short period of practically no trading right before a turnaround, or does the currency have a faster response to a high level of activity? Recognizing these signs on a chart will allow you to plot sound strategies based on what is commonly referred to as technical analysis. This is a key aspect in Forex trading and something you will have to learn almost immediately if you have plans on making a profit.

Thank your high school math teachers after you make your first big gain in the Forex market. For now, study the charts that are easiest for you to understand and apply what you see to your Forex strategy. Over time, reading and comprehending what you see depicted in the chart will become second nature and you will immediately be able to zero in on those indicators that are letting you know when to make your big entry.

Casey Stubbs is the founder of WinnersEdgeTrading.com which is one of the most widely read forex sites on the web. Winners Edge Trading has trained thousands of people to trade the Forex markets.