How to read forex charts for beginners
Learning how to read forex charts is one of the first steps you’ll need to take as a beginner in trading. We explain how you can read some of the main types of FX charts, and more, in this guide.
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Contact us: +44 (20) 7633 5430
Start trading today. Call +44 (20) 7633 5430, or email sales.en@ig.com to talk about opening a trading account. We’re here 24/5.
Contact us: +44 (20) 7633 5430
What is a forex chart?
A forex chart is a graphical representation showing how the price of one currency has changed in relation to another currency over time. The price of the currency pair is plotted on the vertical y-axis, while the horizontal x-axis shows time.
On our trading platforms, you can choose how frequently new data is plotted to a chart by selecting your preferred timeframe, ranging from tick-by-tick to a whole month.
How to read a forex chart
Understanding how to read a forex chart is essential in increasing your probability of success and limiting risk in trading currency pairs.
Let’s take the GBP/USD currency pair as an example using the below graphic. Here’s the information that you’ll be able to read from the chart:
- Currency pair: the asset name shows the ‘base’ currency (pound) first, and the ‘quote’ currency (dollar) second
- Price: the price of the base currency in relation to the quote currency – ie, how many dollars you’d pay to buy one pound – is on the y-axis
- Timeframe: the customisable chart period is on the x-axis
Learn how to interpret candlesticks
Pips on forex charts
Pips on forex charts are also knows as ‘ticks’ – they’re the smallest possible change in price movement of a currency pair. Pip stands for ‘point in percentage’ – this refers to minimum standard change in the quote currency. For example, if the price of GBP/USD moves from 1.4190 to 1.4191, the 0.0001 rise in value of the USD represents a single pip.
Forex chart time intervals
You can view the current performance of a currency pair’s price, or you can select a certain period to see how it has changed over time, which can be anything from ticks, seconds, minutes and hours to days, weeks and months.
Types of forex charts
The type of forex chart you choose to use depends on personal preference and the level of detail you want displayed. Some popular types of charts include candlestick, Heikin-Ashi, HLOC, line and mountain, each of which read in a different way. Let’s take a closer look at these chart types:
Candlestick chart
Candlestick charts display pricing information in long, thin bars that resemble candles.
Each candlestick shows price movement over the period you selected. For example, if you chose a 15-minute timeframe, each candlestick on the chart will show how prices developed over a 15-minute period; the only exception being the candlestick on the far right of the chart, which will show live prices for the current – incomplete – 15-minute period.
At a glance, a green candlestick indicates that the pair moved up in price over the given period, closing at a higher price than the one at which it opened. A red candlestick, on the other hand, indicates that the pair’s price decreased, closing at a lower price than the one at which it opened.
Each candlestick will show four specific prices for the currency pair:
- Open: the price at the start of the period
- Close: the price at the end of the period
- High: the highest price traded during the period
- Low: the lowest price traded during the period
The relationship between the four prices shown by a candlestick can tell you a great deal about how market conditions are shaping up and who is driving the price action: buyers or sellers.
How to interpret candlesticks
Long green candlesticks may indicate that there’s a lot of buying pressure, while long red candlesticks may indicate a lot of selling pressure.
Candlesticks with long wicks and short bodies, on the other hand, indicate that there was considerable pressure in one direction, but that the price was pushed back before the end of that period.
Dojis
Occasionally, the opening and closing prices are equal (or very close together), creating a black cross known as a ‘doji’. This is indicative of indecision in the market, with neither buyers nor sellers able to assert enough influence over the direction of price movements.
Taken on its own, a doji is a neutral pattern of little significance. However, if a doji forms within an uptrend or downtrend, it may indicate that a reversal is on the way. To learn more about chart patterns, go to IG Academy.
Heikin-Ashi
A Heikin-Ashi style chart is a type of candlestick chart. Heikin-Ashi is a Japanese term that roughly translates to ‘average pace’ or ‘average bar’ – this type of chart depicts price averages as well as their changes (up or down) over a certain period. A long green bar indicates a significant increase in average price, whereas a long red bar shows a sharp decrease in the average price.
While it may look like the traditional candlestick chart, Heikin-Ashi charts differ quite significantly in several ways. For example, they’re smoother than candlesticks as they show general trends, instead of exact prices. Additionally, the opening price of each bar is the mid-point of the previous bar, and a bar’s closing price is the average price for the period it spans.
HLOC chart
An HLOC chart (also called a bar chart), which stands for ‘high, low, open, close’, shows exactly the same data as a candlestick chart, but in a different way:
- The open price is represented by the notch to the left of the vertical line
- The close price is represented by the notch to the right of the vertical line
- The high price is the uppermost point of the vertical line
- The low price is the lowest point of the vertical line
Once again, the line will be green if the currency pair moved up in price over the given period, closing at a higher price than it opened. Conversely, it’ll be red if the pair’s price decreased over the given period, closing at a lower price than it opened. It’s possible for dojis to form when the open and close prices are equal.
Line chart
A line chart only shows the close price for the time period you have selected (eg one hour). The close prices are joined together so that the consecutive points form a line.
This is a very simple way to display pricing data as it doesn’t give any indication of what the high, low or open price for the period was. For this reason, many forex traders only use line charts when assessing long-term trends, where some of the additional information may not be quite as relevant as it is when trading short-term patterns.
Mountain chart
A mountain chart is the same as a line chart, except the area beneath the line is shaded, giving it the appearance of a mountain in silhouette. Like line charts, this type is mainly used to assess long-term trends, as the high, low and open prices for each period aren’t on show.
What are forex indicators?
Forex indicators are overlays that you can add to charts – they represent mathematical calculations that can help you identify market signals and trends. While indicators can be helpful to use as part of your technical analysis, it’s just one of the ways of strengthening your trading plan and decision-making.
Let’s look at some of the most popular indicators used in forex trading.
1. Moving average
The moving average (MA) – also known as ‘simple moving average’ or ‘SMA’ – determines in which direction the current price trend is moving in. It can also be used to identify the strength of a trend and any possible imminent reversals via support and resistance levels. You can add short-term, mid-term, and long-term MAs to charts.
2. Relative strength index
A relative strength index (RSI) shows the direction in which a market is likely to move. While RSI can be represented as any figure from 0 to 100, support and resistance levels are set at 30 and 70. An asset with an RSI of around 30 is considered as oversold (signifying a possible upcoming rally), while one that’s around 70 is considered as overbought (signalling a possible downward trend).
3. Slow stochastic
Like the RSI, slow stochastics are an oscillator that can help you find oversold or overbought environments through tracking momentum and trend strength. Probable reversals in price are marked by the scale reading (also 0 to 100). A figure below 20 is often seen as representing an oversold market, while 80 and above is considered as an overbought market.
4. Moving average convergence divergence
Moving average convergence divergence (MACD) compares two moving averages to detect fluctuations in momentum. Traders often use this indicator to spot support and resistance levels that might signal potentially beneficial buy and sell opportunities. Convergence means that the moving averages are moving towards one another, and momentum is decreasing; while divergence means that they’re moving away from each other, and momentum is increasing.
What is technical analysis?
Technical analysis involves studying historical chart patterns and formations to predict the future direction of a market’s price – for example, looking at the relationship between consecutive candlesticks or HLOC bars. While this guide has introduced the basic concepts you need to know to read forex charts, many experienced traders use more advanced technical analysis to forecast price movements.
How to access forex charts
You can access forex charts for free on our platform. You can use your live account to access forex charts and take a position, or you can view charts and practise your forex trading on our demo account for free, without using any real capital.
How to open an account
You can open a live trading account and start trading forex in these steps:
- Fill in a simple form: we’ll ask about your trading knowledge to ensure you get the best experience
- Get verification: we'll verify your identity as soon as possible
- Fund your account and start trading: you can also withdraw your money easily, whenever you like
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