Forex charts are the most important tool in a trader’s toolbox. They help you see how the market moves, identify patterns, and make better decisions.
In this article, we’ll break down the basics of reading forex charts and introduce you to price action trading—a simple but powerful way to trade using the chart alone.
🧱 1. What Is a Forex Chart?
A forex chart is a visual representation of the price movements of a currency pair over time. The chart shows:
- The exchange rate (price) on the vertical axis
- The time period on the horizontal axis
You can choose different timeframes (e.g., 1-minute, 1-hour, 1-day) depending on your trading style.
🕐 2. Types of Forex Charts
There are 3 main types of forex charts:
| Chart Type | Description |
|---|---|
| Line Chart | Connects closing prices with a line. Simple and clean. |
| Bar Chart | Shows open, high, low, and close (OHLC) for each period. |
| Candlestick Chart | Most popular. Displays OHLC in a visual, color-coded format. |
📌 Most traders use candlestick charts because they offer more detailed information at a glance.
🕯️ 3. Understanding Candlestick Charts
Each candlestick shows how price moved during a selected time period.
- Body = distance between open and close
- Wick (or shadow) = high and low of the period
- Color =
- Green (or white): price closed higher (bullish)
- Red (or black): price closed lower (bearish)
📊 Example: A bullish candle on a 1-hour chart means price went up during that hour.
📉 4. Price Action: Reading the Market Without Indicators
Price action is the practice of reading charts without indicators—just analyzing how price moves.
Key things to watch for:
- Support and Resistance: Areas where price tends to reverse
- Trendlines: Show overall direction (uptrend, downtrend, sideways)
- Candlestick Patterns: Predict market behavior (e.g., doji, engulfing, hammer)
🔍 5. Common Candlestick Patterns
| Pattern Name | Meaning |
|---|---|
| Doji | Market indecision |
| Hammer | Potential reversal from downtrend |
| Engulfing Candle | Strong reversal signal |
| Inside Bar | Possible breakout setup |
Learning these patterns helps you spot high-probability trades just by looking at the chart.
🧭 6. Choosing the Right Timeframe
Timeframes depend on your trading style:
| Style | Timeframes Used |
|---|---|
| Scalping | 1-minute to 5-minute charts |
| Day Trading | 15-minute to 1-hour charts |
| Swing Trading | 4-hour to daily charts |
| Position Trading | Daily to weekly charts |
✅ The higher the timeframe, the more reliable the chart patterns—but they take longer to play out.
✅ Summary
Here’s a quick recap:
| Concept | What You Should Know |
|---|---|
| Forex Chart | Visual representation of price over time |
| Candlestick | Shows open, high, low, close in a single bar |
| Price Action | Trading based on price movements alone |
| Support/Resistance | Key levels where price often reacts |
| Patterns | Help forecast market direction (e.g., doji, hammer) |
📘 Next in the Series:
👉 LESSON 4: Types of Forex Orders: Market, Limit, Stop-Loss, and More
