If you want to become a successful forex trader, you need to read and understand forex charts. You can make use of charts to predict the price movement of different pairs of currencies and take important investment decisions easily. Traders can make use of charting tools to determine trends and identify the best time to enter and exit the forex market.
Charts record several prices for a specified period and you can make use of this information to determine how the currency pair of your choice has performed in the past. This can enable you to make predictions on the future movement of the currency pairs.
Forex charts and continuation patterns
You may be able to see continuation patterns in forex charts when there is a change in the direction of the trend for a brief period before it returns to its original position. It is usually during a volatile period that you see the continuation patterns, and the major types include triangle and wedge.
The triangle patterns are common and they occur on short time frames. The different types of triangle patterns include ascending, descending and symmetrical triangles. When a currency pair is consolidating upwards, ascending triangles occur and they usually break through the resistance level.
Similarly, when a currency pair is consolidating downwards, descending triangles occur and they usually break through the support level. When the highs and lows come together to form a triangle, symmetrical triangles occur and they have a consolidation pattern.
Falling and rising wedge are the other two patterns that you need to be aware of when reading a chart. The falling wedge is an indication of the bullish pattern prevalent in the forex market and you may see the price break upwards. The rising wedge is a bearish pattern with the prices coming down. You may be able to determine the direction of the currency pair when you look at the chart patterns. The trends that you see on the charts may continue for a few days, weeks or even years in some cases.
Different types of forex charts
Bar, line and candlestick charts are the three most popular forex charts used by traders. The line chart is the simplest chart where the closing price of the currency pair at the end of the day is displayed. When you look at this chart, you may be able to understand the price of the currency pair over a period.
The bar chart consists of high, low, opening and closing price points. Candlestick charts are similar to bar charts where they also display the high, low, opening and closing price points. A period is represented by each candlestick and you can choose to use different colours for each one of them.
When you start learning to read and interpret charts you may be able to apply your knowledge for technical analysis. When you start analysing charts you may be able to understand support and resistance levels and this can help you time your trade in an effective manner and make consistent profits.