Things you Need to Know About Forex Charts

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Things you Need to Know About Forex Charts

Whether you trade options, binary options, or forex, if you use forex charts, you may notice a couple strange things at first. Here we will look at some simple concepts to help you better understand the forex market and forex charts.

Pairs and Trend Direction

Currencies always trade in pairs – the EUR/USD, AUD/CAD etc. So if you pull up a chart of the EUR/USD, and the chart shows the price is moving higher, what does that mean? In simple terms you can think of the first currency as the directional currency. So in this case, the EUR is rising, relative to the USD. If you pull up a chart of the AUD/CAD and the price of the pair is falling, that means the price of the AUD is declining relative to the CAD.

If you buy the EUR/USD you are expecting that the EUR will rise relative to the USD, and therefore will want to see the price move higher on your chart.

If you sell the EUR/USD you are expecting that the EUR will decline relative to the USD, and therefore will want to see the price move lower on your chart.

A few years ago most pairs were quoted at four decimal places, now they are typically quoted at five. The forth decimal place represents 1 pip, while the firth decimal place represents 1/10 of a pip, or a “fractional pip.”

For example the EUR/USD may be trading at 1.38056, and will constantly fluctuate throughout the trading week…providing profit potential. But what does this price mean? Think of the first currency as “1.” The second currency is the price “1.38056”, and is how much it costs of the second currency to buy the first. So in this case, it costs 1.38056 USD to buy 1 EUR.

Yen (JPY) Pairs are typically quoted to three decimal places, such as 101.654 for the USD/JPY.

Time Frames and Indicators

When you view forex charts, there are multiple timeframes you can look at. Popular time frames are 1, 5, 15, 30-minute charts, hourly, 4-hour, daily and weekly. Each bar on the chart represents the timeframe. So 1-minute charts will show 1-minute price bars, and is useful for seeing very short-term price action and trading opportunities. Each bar on a daily chart is one day, and shows trends and opportunities for longer-term trades, or shows the overall trend which can be used to filter out trades on a shorter time frame (see: The Two Time Frame Approach to Trade Selection).

When you apply an indicator to the chart, it will automatically adjust to the timeframe you have chosen. For example, a 50-period moving average will work on a 1-minute chart as well as a daily chart. With the daily chart the moving average will show the average price over the last 50 days. With the 1-minute chart the moving average will show the average price over the last 50 minutes.

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The Bid and Ask on the Chart

In the forex market there are always two prices at any given time–the Bid and Ask/Offer. Forex charts by default show the Bid price. This varies from stock charts which typically show the last price a transaction occurred at.

In forex there is usually a spread, so the ask price–the price you can buy at right now–is always going to be slightly higher than the (bid) price on the chart. If you are selling, you can sell to the bid price and the price on the chart is accurate. For example, if the EURUSD chart shows a price of 1.38056, that is the price you can sell at right now. The offer could be 1.38066 (1 pip higher), so if you market buy, this is the price you get, not the price shown on the chart. The spread can vary drastically from broker to broker. If you are just using forex charts for informational purposes, or to trade options or binary options, this may not matter as much. But if you are trading forex, the spread is a major factor. The smaller the spread the better.

Forex brokers are all over the world, and typically the charts they offer will align with their home time zone. That means daily price bars may start and end at different times. This means if you compare the daily bars of one broker to another, they may have different highs and lows as well as different opening and closing prices. One broker may operate from midnight to midnight EST, while another operates from midnight to midnight GMT. Have a world clock handy or get used to converting time zones if your broker is in a different time zone than you. Also, if you are comparing charts on different platforms, make sure the time zones are the same, so you can accurately compare the charts.

Also keep in mind that information sites also have a time zone attached to them. Say you want to know what economic news releases are coming out today. The times given could be EST, MST, GMT or any other time frame. Make sure you know which it is, and account for it.

Many sites and platforms allow you to change the time zone. When applicable use this feature to avoid making mistakes on time zone conversion.

You’ll also want to know when different markets around the world are open. The forex market is open 24-hours during the week, but is most active when major markets are open. See Making Sense of Forex Market Hours for more on this topic.

The forex market and forex charts can be a bit confusing at first, but eventually you get used to it and it becomes second nature. When trading forex, keep these points in mind, as they will make your path a bit easier.

TOP 5 THINGS YOU NEED TO KNOW ABOUT FOREX BEFORE INVESTING IN IT

Forex is a market where currencies are exchanged. If we look at the nature of this word, the word derived from two words that are Foreign and Exchange. To make it FOR was take from FOREX while EX from Exchange. Thus, even the name represents that this term is dependent upon exchanging currencies. If you are novice to this money world where big gigs happen every day but want to enter in, here are the top most basic yet five essential things you need to know about Forex before investing in or entering in.

You Can Exchange Commodities like Gold, Silver, oil and other precious goods into Forex

When people came to know about forex, they thing that the currency is the only unit which is sold, purchased or exchanged in the market. Well, for your information let me inform you that you can also exchange expensive and precious minerals like oil, gold, and silver etc. in the forex market. To exchange goods instead of money, you first have to determine the value of that commodity in the international market. You will be betting for

Value of gg = Value of the commodity in international market * Unit of that commodity you want to bid

To give you a better understanding; suppose that you want to exchange 3 units of gold in the forex. The price of one unit of gold will have to be determined first. Suppose the price is 1.5 million, now you will multiply 1.5 with 3, and the answer is the value of the gig you are betting in the forex for. You can say that money is the only directly exchanged commodity, and the commodities other than money will be indirectly exchanged.

Do not invest your complete savings into the market at once, understand your limits

You need correct gig timing and the right commodities to exchange in the market but your luck matters as well. There are examples of people who invested their complete money into this forex market and then came on the road because they had nothing left for their bread and butter. Thus, I will not suggest you invest the whole of your asset into the forex market.

Another reason that you need to understand your limitations while investing in the forex market is the time when the trade will be taking place that stress can even lead you towards a stroke because all you have is at stake. Thus, it is suggested that instead of putting your complete money into the forex market, start with the smallest investment first. You will learn the tactics and techniques of investing and winning into this market with a passage of time, but for the time being, you must start with taking the first step so that in case you lose, still you will have enough to lead your life as the loss is very small.

Enter in the Market through some Forex Exchange Platform that lets you enter in the market in the lowest rates

As you are new to the niche of forex exchange hence entering independently is risky. You must find a reliable platform or portal that assists you in your trading at the forex. You know that before the advent of the internet, there were forex experts who used to give advice and hints of trading to their clients via phone calls. A person will have to stick to a platform 24×7 to get updates.

Now the things have gone advanced, and due to interment, you don’t need to stick to the television screen or a screen that shows you ups and downs of the forex market. A single computer screen and an online platform can give you enormous and complete bits and bobs of the foreign market. These companies are embedded with experts who are in the niche of currency trading since long. Also, they don’t charge you so much, in fact, they let you enter the forex market as low as only dollar 100.

On this dollar five, they give you a guarantee of 90 per cent profit on this small investment. All you need to do is, trade according to the instructions of the given platform and bingo, success will be yours.

You have to patient and never lose hope when you are dealing in the forex market

Next thing you need to do is have patience and stamina of understanding the ups and downs of the forex market. You know that when you are attached to a firm for your forex trading, the firm has a staff to assist you that have huge experience in the forex. Nevertheless, if you see something that is not inside the instructors or the precautions, you need to stay patient, calm hopeful.

Moreover, even if you have lost some money, still there are lots of opportunities to earn more, and that get small lost money back. You need to stick to the instructions of your forex advisor. With first lose don’t lose hope learn from the mistakes and by overcoming those mistakes, you will be able to win next time.

Forex is not just a matter of luck there are certain tactics involve that can make you win

Last but not least, people think that winning at forex market is all the matter of luck. I want to tell those people that although your luck matters but the forex is not completely and only dependent upon luck. If luck would be the only thing that could make you win then what is the use of forex expert who always gives successful trades.

Thus, here I again suggest that find a company that will assist you in your trades and lets you enter the foreign market with tiny investments. However, don’t forget to check the previous record of the company before investing through them. You need to know the success rate of the company and how much their instructions were proved to be correct.

The Basics of Forex Trading

“Forex” stands for foreign exchange and refers to the buying or selling of one currency in exchange for another. It’s the most heavily traded market in the world because people, businesses, and countries all participate in it, and it’s an easy market to get into without much capital.   When you go on a trip and convert your U.S. dollars for euros, you’re participating in the global foreign exchange market.

At any time, the demand for a certain currency will either push it up or down in value relative to other currencies. Here are some basics about the currency market so that you can take the next step and start forex trading.

Currency Pairs Primer

Before you enter your first trade, it’s important to learn about currency pairs and what they signify.

  • In the forex market, currencies always trade in pairs. When you exchange U.S. dollars for euros, there are two currencies involved, so the exchange always shows the value of one currency relative to the other. The EUR/USD price, for example, lets you know how many U.S. dollars (USD) it takes to buy one euro (EUR).
  • The forex market uses symbols to designate specific currency pairs. The euro is symbolized by EUR, the U.S. dollar is USD, so the euro/U.S. dollar pair is shown as EUR/USD. Other commonly traded currency symbols include AUD (Australian dollar), GBP (British pound), CHF (Swiss franc), CAD (Canadian dollar), NZD (New Zealand dollar), and JPY (Japanese yen). 
  • Each forex pair will have a market price associated with it. The price refers to how much of the second currency it takes to buy one unit of the first currency. If the price of the EUR/USD currency pair is 1.3635, this means that it costs 1.3635 U.S. dollars to buy one euro.

To find out how many euros it costs to buy one U.S. dollar, flip the pair to USD/EUR: divide 1 by 1.3635 (or whatever the current rate is). In this instance, the result is 0.7334. It costs 0.7334 euros to buy one USD based on the current market price. The price of the currency pair constantly fluctuates, as transactions occur around the globe, 24 hours a day during the week.

Market Pricing: A Quick Overview

Learning forex trading involves getting to know a small amount of new terminology that describes the price of currency pairs. Once you understand it and how to calculate your trade profit, you’re one step closer to your first currency trade.

Many currency pairs will move about 50 to 100 pips per day(sometimes more or less depending on overall market conditions). A pip (an acronym for Point in Percentage) is the name used to indicate the fourth decimal place in a currency pair, or the second decimal place when JPY is in the pair. When the price of the EUR/USD moves from 1.3600 to 1.3650, that’s a 50 pip move; if you bought the pair at 1.3600 and sold it at 1.3650, you’d make a 50-pip profit.

The profit you made on the above theoretical trade depends on how much of the currency you purchased. If you bought 1,000 units in USD (called a micro lot) each pip is worth $0.10, so you would calculate your profit as (50 pips x $0.10) = $5 for a 50 pip gain. If you bought a 10,000 unit (mini lot), then each pip is worth $1, so your profit ends up being $50. If you bought a 100,000 unit (standard lot) each pip is worth $10, so your profit is $500.

How much each pip is worth is called the “pip value.” For any pair where the USD is listed second, the above-mentioned pip values apply. If the USD is listed first, the pip value may be different. To find the pip value of the USD/CHF, for example, divide the normal pip value (mentioned above) by the current USD/CHF exchange rate. A micro lot is worth $0.10/0.9435 = $0.1060, where 0.9435 is the current price of the pair. For JPY pairs (USD/JPY), go through this same process, but then multiply by 100. For a more detailed explanation, see Calculating Pip Value in Different Forex Pairs.

For trading purposes, the first currency listed in the pair is always the directional currency on a forex price chart. If the price is moving up on EUR/USD, it means the euro is moving higher relative to the U.S dollar. If the price on the chart is falling, then the euro is declining in value relative to the dollar.

One of the best ways to learn about forex is to see how prices move in real time and place some fake trades with an account called a paper trading account (so there is no actual financial risk to you). Several brokerages offer online or mobile phone app-based paper trading accounts that work exactly the same as live trading accounts, but without your own capital at risk. There are several online simulators for practicing day trading and honing your forex trading strategy and skills.

Understanding the above concepts will help you grasp what’s happening when you see a forex pair rising or falling on a chart. If you do the math on the difference in pips between two price points, it will also help you see the profit potential available from such moves.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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