How to Read FX Charts
Charts are visualizations of a financial instrument's price movements over a period of time. Charts of FX, also known as foreign exchange or Forex, are graphs of currencies' exchange rates. These charts show how much a unit of one currency costs in terms of another currency.
Reading FX charts is not very complicated, but you need to understand certain things.
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Instructions
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Identify which currency pair your chart shows. The name of the chart typically represents the exchange rate shown on it. For example, EUR/USD shows how the price of 1 euro in terms of the U.S. dollar changed over a period of time.
The most widely used chart is a line chart, which shows the price at which a currency was sold. Another popular type of a chart is a candlestick chart; its bars show the difference between the prices at which the currency was sold and bought (the so-called bid-ask spread).
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Determine the period of time your charts captures, as well as the length of time between dots. A line on the chart (or bars, if it is a candlestick chart) actually connects numerous dots that represent exchange rates at certain periods of time. The most widely used intervals at which the exchange rate is measured are m1 (one minute, i.e. the exchange rate readings are taken every minute, and those readings are used to make a line on the chart), m5, m10, h1 (one-hour), h3, and d1 (day).
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Analyze the volume. The volume of a currency changing hands on a chart is usually shown by bars at the bottom of the chart, just above the horizontal axis. The higher the bar, the larger the volume at a particular point in time. If the volume is high, the exchange rate typically needs a lot of pressure to change. Light volume can result in higher volatility.
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References
- Photo Credit exchange fluctuations image by Raimundas from Fotolia.com
