Summary:
Mastering Forex charts and strategies is essential for traders to make informed decisions. This guide explains different chart types and strategies for Forex trading, highlighting the tools FundedNext offers to enhance the trading experience.
Main Points:
- Overview of Forex charts and how they aid in price trend analysis.
- Explanation of chart types: line, bar, and candlestick.
- How to read charts for support, resistance, and trendlines.
- Key strategies like the Wyckoff Method and Smart Money Concepts.
- FundedNext’s trading ecosystem with platforms and tools for technical analysis.
Understanding Forex charts and Forex chart patterns is the foundation of Forex trading. When you can read these charts and understand how certain currency pairs and the overall market are moving, you can make more informed decisions.
In the previous chapter of our guide, we reviewed prop firm profit sharing and payouts. Now, we’re looking at some of the strategies and processes traders use to earn those payouts.
A sound Forex trading strategy is the key to success. While no strategy is 100% effective at all times, a logical strategy can help you make the right choices. While we do not endorse any specific strategy at FundedNext, we know that the ability to read Forex charts and follow a well-rounded strategy is vital for all traders.
Keep reading to learn about the basics of reading charts for Forex. We will also cover some common Forex chart strategies to help you learn more about them.
What Forex Charts Are and How to Read Them
In this section, we will define what Forex charts are, the types of Forex charts you can expect to come across, and and how to read these charts. Let’s begin!
Definition of Forex Charts
Forex charts are a simple concept, even though they can display a great deal of data. A Forex chart is simply a visual model that shows changes in the price of a Forex currency pair over time.
Traders rely on chart patterns in Forex to carry out their strategies. By tracking the price movement over time, traders gain key insights into potential future changes. That empowers them to make decisions based on facts and strategy instead of emotion.
Types of Forex Charts
There are three basic and popular types of forex charts, as Babypips explains:
- Line charts: These charts for Forex prices simply show the closing price of a currency pair each day, or for each specified time period (an hour, every five minutes, etc.).
- Bar charts: Bar charts show the daily high and low price of a pair, as well as the opening and closing price. They look very similar to line charts but share more info about price movements.
- Candlestick charts: These charts use a rectangular “candle” body to show the opening and closing prices and lines, also called “wicks” or “shadows” to show the daily high and low. The body is either unfilled or shown with a light color when the closing price is higher than the opening price, and filled with a dark color when the opposite is true.
Live Forex charts are very similar — they show the most recent and updated data for a given pair. These charts are especially useful for traders who use very short-term trading strategies, like scalping, where pairs are only held for minutes or seconds.
How to Read Forex Charts
Common Forex charts all have two main axes: The horizontal time axis and the vertical price axis. These are easy to understand on a basic level. Older info is on the left of the time axis, while newer info is to the right. Higher prices appear farther up on the price axis, while lower prices are toward the bottom.
Reading Forex charts can reveal very valuable information for a trading strategy, including:
Support and resistance: As a Forex pair’s price falls, it becomes more attractive to buyers, and demand increases — this is support. As a Forex pair’s price increases, it will become more attractive to sellers due to the higher cost — this is resistance.
As a part of technical analysis, traders watch for pairs to reach close to past support and resistance levels and make decisions based on the likelihood of a current trend plateauing or reversing.
Trendlines: Generally, traders can look at past performance to see how Forex pairs change in price over time and draw lines that show longer-term trends and how they might continue into the future. They might use this data to predict upcoming reversals and continuations or decide when to enter or exit a position.
Forex Trading Strategies
There is an incredible range of Forex trading strategies. Many traders take established concepts in technical analysis (reading chart data to identify and predict trends) and fundamental analysis (considering how news and events impact Forex pairs) to build a personal strategy.
These can include daily chart Forex strategies that focus on short-term changes, as well as strategies that follow a longer timeline, such as for swing trading.
The most important thing you can do is learn about foundational strategies — we’ll share a few examples below — and think about how they fit into your trading goals and tolerance for risk. You can always try out new strategies without putting yourself at any financial risk using a demo account.
Wyckoff Method
The Wyckoff Method is all about choosing the right pairs at the right time. It focuses on reviewing past price and volume data and patterns to predict future asset movement.
The Wyckoff Market Cycle is a repeating cycle of price changes that shows a Forex pair starting at a relatively low price and gaining interest from traders as supply and demand become more balanced. The pair is purchased more as the demand increases and the price rises. Eventually, the pair plateaus, and smart traders sell it before its eventual decline.
This is just an introduction to the Wyckoff Method and Market Cycle. Check out our blog on the Wyckoff Method to learn more.
Smart Money Concepts
The basic idea behind Smart Money Concepts is to follow the traders and institutions with superior knowledge and in-deptth analysis that also trade in the Forex market. Following their trades can help individual traders jump on a trend early and gain the most benefits.
Smart Money Concepts include a wide range of more specific types of analysis and Forex chart interpretations. Dive deeper into Smart Money Concepts in our blog dedicated to the topic.
FundedNext Provides a Full Trading Ecosystem
FundedNext is proud to offer a complete trading ecosystem to its traders, delivering all the tools needed for technical analysis and carrying out a Forex trading strategy.
FundedNext traders have access to leading trading platforms like MT4, MT5, and cTrader. They can easily view live Forex charts and use a wide range of technical indicators and tools to support their trading strategy.
Now that we’ve covered the basics of Forex charts and strategies, you may want to learn about the psychology of trading. We cover that topic in Chapter 7 of our guide.
Ready to start trading with a leading prop firm? Test your trading strategies in our Evaluation Model to prove your trading abilities. Get started with FundedNext!
