How to read forex charts for beginners

What is a forex chart?

A forex (FX) chart is a type of trading chart that shows how the price of one currency has changed over time compared to another currency.

FX charts are used by traders when performing technical analysis to help make predictions about how the price of the currencies will move in future.

Understanding the different types of forex chart

While the fundamentals of forex charts will stay the same regardless of the chart you use, different types of charts will display the price information in slightly different ways.

There are three main types of trading chart:

1. Line chart
2. Bar chart
3. Candlestick chart

Line chart

A line chart is arguably the simplest type of forex chart, but also carries the least information. Line charts show how the price of a currency pair has changed over time, but only shows the "close" price for the timeframe you have selected.

For example, an FX line chart with a 1 hour timeframe will show the price as it was at the end of each hour-long period. This price is then connected to the close price for the two 1 hour periods either side of it, producing the line on the chart.

Ultimately, a line chart will help you see the general price trend, but it won't give you the complete picture of how the price actually changed during a given period.

Bar chart

Bar charts offer a more detailed view of how the price has moved within each time interval, which can give traders a better idea of how the price may react in future.

If an individual bar is green, it means the price was higher at the end (the close) of that time period than it was at the start (the open). If an individual bar is red, it means the price was lower at the end of the time period.

This type of chart is also known as a HLOC chart because of the 4 key pieces of price information it provides: the high, low, open and close.

How to read a bar chart

This is how you can ascertain the 4 pieces of price information included in a bar chart:

Opening price: This is represented by the notch on the left.

Closing price: This is represented by the notch on the right.

High price: This is represented by the top of the vertical line.

Low price: This is represented by the bottom on the vertical line.

Candlestick chart

Like the name suggests, candlestick charts display pricing information in long, thin bars that resemble candles.

Each candlestick represents the price movement over a specific time interval.

Like with bar charts, a green candle shows that the price closed at a higher price in that time interval, while a red candle shows that price closed at a lower price.

Compare online forex brokers

If you're looking to get into forex trading, you'll need a broker.

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Pepperstone Forex Trading (Razor Account)	AUD 0	$0	0.01	MetaTrader 4 MetaTrader 5 cTrader TradingView Pepperstone Trading Platform	Disclaimer: CFD Service. Your capital is at risk. Choose from a range of fee-free funding methods, plus multiple trading tools including Smart Trader Tools for MetaTrader and cTrader platforms.	Go to siteView details Compare product selection Compare	loading
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FP Markets (Standard Account)	AUD 0	$0	0.01	MetaTrader 4 MetaTrader 5 cTrader TradingView IRESS Mottai Trader	Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits. Low minimum opening deposit, real-time news and pricing, and customisable alerts based on news or technical trading indicators.	Go to siteView details Compare product selection Compare	loading
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Plus500 Forex Trading	AUD 100	$0		Plus500 Trading Platform	Disclaimer: CFD Service. Your capital is at risk. Minimum spreads of 0.01% for major currencies. Customers should visit Plus500's website for updated spreads in real time. Open an account and experience Plus500's easy-to-use proprietary trading platform, 24/7 online chat support and free real-time forex quotes.	ContinueView details Compare product selection Compare	loading
CMC Markets	AUD 0	$0	0.01	CMC Markets Platform, MetaTrader 4, TradingView	Disclaimer: CFD Service. Your capital is at risk.	ContinueView details Compare product selection Compare	loading
Mitrade Forex	AUD 50	$0	0.01	Mitrade Trading Platform	ContinueView details Compare product selection Compare	loading
FOREX.com Forex Trading	AUD 150	$0	0.01	MetaTrader 4 At Pro Advantage Web	Disclaimer: CFD Service. Your capital is at risk. Choice of trading platforms, integrated Reuters news and device-synching so you can monitor trades across multiple devices.	ContinueView details Compare product selection Compare	loading
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eToro Forex Trading	USD 50	$0	0.01	eToro Trading Platform	Disclaimer: CFD Service. Your capital is at risk. Social trading, advanced charting tools, plus receive exclusive benefits through the eToro Club (membership is tiered based on the equity in your trading account).	ContinueView details Compare product selection Compare	loading
ACY Securities Forex Trading	USD 50	$0	0.01	MetaTrader 4 MetaTrader 5 LogixTrader	Disclaimer: CFD Service. Your capital is at risk. Trade over 2,200 CFDs instruments across forex, shares, ETFs, indices, commodities, and cryptocurrency.	ContinueView details Compare product selection Compare	loading
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ThinkMarkets Forex Trading	AUD 0	$0	0.01	MetaTrader4, MetaTrader5, ThinkTrader	Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits. Trade forex, commodities and CFDs using MetaTrader4/MetaTrader5 platforms or access advanced analysis tools through ThinkTrader.	ContinueView details Compare product selection Compare	loading
Fusion Markets	AUD 0	$0	0.01	MT4, MT5, TradingView, cTrader	ContinueView details Compare product selection Compare	loading
easyMarkets Forex Trading	AUD 200	$0		MetaTrader 4	ContinueView details Compare product selection Compare	loading
Axi Forex	AUD 100	$0	0.01	MetaTrader4, MetaTrader4 Next Gen, Psyquation, AutoChartist, WebTrader, Axi-One ECN	Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits. Axi uses the popular MT4 trading platform along with several free add-ons. Live chat, email and phone support available 24 hours a day, Monday to Friday. Important: Axi is undergoing a review by the Administrative Appeals Tribunal into a recent decision by ASIC to suspend its Australian financial services (AFS) licence. Until a final decision has been made by the Tribunal, AxiCorp can continue normal operations.	ContinueView details Compare product selection Compare	loading

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Understanding forex indicators

Along with the trading chart itself, forex traders also use a series of indicators to help inform their decisions.

These indicators measure various aspects of the market, such as overall trading volume or volatility, to help add more context to the market. They are often used in conjunction with the trading chart to determine likely price movements.

Traders may use one or multiple indicators to aid their technical analysis, but each trader develops their own strategy according to what works for them.

You can get the lowdown on some of the most popular trading indicators below:

Stochastics

If you're looking to predict if a trend might end or reverse, you might want to use stochastics.

Stochastics are an oscillator, or a leading indicator, that measures overbought and oversold conditions in a market.

When a market is overbought, this means that buyers have bought all they are going to for that session and the sellers will take over, driving the price down.

The same is true, but in reverse, for oversold conditions.

Stochastics are plotted as 2 lines on a scale of 0 to 100, usually on a graph below the chart.

When the lines are above 80, this signifies an overbought market and when they drop below 20, this implies an oversold market.

The idea is to sell in overbought conditions and buy in oversold market conditions.

Relative Strength Index

The Relative Strength Index (RSI) also indicates overbought or oversold market conditions and is plotted in a similar fashion to stochastics.

But the main difference, and its effectiveness in FX trading, lies in the fact that the RSI can also confirm the formation of a new trend.

If you feel an upward trend may be forming, you can verify this by checking whether the RSI is above 50 or below 50 for a downtrend.

Bollinger bands

In FX trading, Bollinger bands measure the volatility of a market.

The more volatile the market, the wider the space between the bands will be. The less volatility, the smaller the gap will be.

Although the good news is you won't have to do the maths behind the bands.

In fact, they are relatively useless to traders.

However, what is important to traders is the fact that the price tends to retrace to the centre of the bands, where each band acts as a support and resistance level.

This is known as the Bollinger bounce.

If the price is touching the top band, or resistance level, it is safe to assume that it will bounce towards the middle, which would offer a good trading opportunity.

The Bollinger squeeze refers to the moment when the band's contract and the price is trending in a very narrow channel.

When the bands contract, this usually signals that a breakout is about to occur.

The narrower the channel, the stronger the breakout will be.

The exact direction of the breakout cannot be predicted, but if the price breaks through the resistance, or top band, then it is safe to assume that the market will be moving into an upward trend.

A trader could place entry orders at a set level above the resistance level or below support to catch the breakout, no matter which direction the market moves.

The bottom line

When it comes to forex chart analysis, there are many different methods traders can use.

While all of them have some limitations, it is important to find a method that works for your individual trading plan.

Regardless of your strategy, you should focus on macroeconomic fundamentals that drive currencies.

Forex trading is also incredibly risky. For beginner traders, it is important they test their strategies prior to trading. This can be done through the use of demo accounts.

Frequently asked questions

• Is forex good for beginners?

  Forex trading can be complex and is incredibly risky to trade, with even seasoned professionals not having the best strike rate. When it comes to trading for beginners, they should exercise caution and even test their theories using demo accounts.

• Which chart is best for forex trading?

  Candlestick charts are arguably the most popular chart with professional traders because of the amount of information they offer about the market and how easy they are to read. Bar charts also offer similarly detailed information, but can be more difficult to interpret.

• What is the best time chart for forex?

  Many traders will use a combination of longer and shorter timeframe charts to get a better sense of how an FX market is behaving. Some will use a ratio of 1:4-1:6 between the two timeframes. For example, this would mean using a 1-hour chart in combination with either a 4-hour or 6-hour chart.

• How can a beginner trade forex online?

  If you're looking to start trading, there are a few steps you'll need to follow:

  1. Open a forex or CFD trading account
  2. Research the pairs you want to trade
  3. Come up with a strategy for trading these pairs
  4. Place your forex trade
  5. Close your trade and reflect on how it went compared with your thesis

• What are the 3 ways to analyse forex charts?

  1. Technical analysis - This relies on identifying and evaluating investment opportunities based on trends and patterns seen on a chart.
  2. Fundamental analysis - When it comes to forex, this involves focusing on the overall state of the economy, including GDP, interest rates and international trade, to work out the value of one currency compared to another.
  3. Sentiment analysis - This relies on other traders. It is about the raw data or percentages that other traders are taking for a position and making a judgement based on this information.

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Thomas Stelzer

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Tom Stelzer is a journalist with 6 years of experience covering personal finance, specialising in investment and cryptocurrency. With a Master of Media Arts and Production and a Bachelor of Communications in Journalism from the University of Technology Sydney, Tom provides expert analysis on digital assets and market trends, helping readers navigate the fast-evolving world of finance. See full bio

Co-written by

Cameron Micallef

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Cameron Micallef is a personal finance journalist with eight years of experience, specialising in investing, property and household bills. He has written for Smart Property Investment, nestegg and Investor Daily. Cameron holds a Bachelor’s degree in Communication and Media Studies and Commerce, as well as a Tier 1 Generic Knowledge certification (RG146), ensuring compliance with ASIC standards. See full bio

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