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.
How to read a forex chart
There are 3 key pieces of information you'll need to be able to interpret in order to read an FX chart: the currency pair, the price and the timeframe.
When viewing an FX chart, you should be able to see which currency pair is being traded by looking at the top left of the chart.
You should also be able to see that the vertical axis (y-axis) shows the value of one currency measured in the other currency (the price), while the horizontal axis (x-axis) shows how this value has shifted over a specific time period (the timeframe).
Each point on the chart represents how the price has moved during one interval of the specified timeframe. For example, on a 1-day chart (like the one below), each point on the chart will cover a 1-day (24 hour) period.
Using the chart above as an example, you can see that the currency pair is the Australian dollar and US dollar (AUD/USD) by looking at the top left.
The currency that's listed first (in this case AUD) is the one who's value is being tracked, which means the currency price displayed on the chart is actually USD.
If the value of AUD goes up against USD, the price on the chart will go up and if the value of AUD goes down, so does the price on the chart.
On our demo chart, you can see how the price of Australian dollars has changed each day in relation to US dollars over roughly a 4-month period. While it was valued at around US$0.65 at the start of August, it then rose to around US$0.69 by October before dropping again.
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.
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.
Disclaimer: General information only. All forms of investments (and in particular, trading CFDs, commodities and forex) carry significant risk, including the risk of losing more than the invested amounts, market volatility and liquidity risks. Past performance is no guarantee of future results. Such activities are not suitable for most investors.
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
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.
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.
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.
If you're looking to start trading, there are a few steps you'll need to follow:
Open a forex or CFD trading account
Research the pairs you want to trade
Come up with a strategy for trading these pairs
Place your forex trade
Close your trade and reflect on how it went compared with your thesis
Technical analysis - This relies on identifying and evaluating investment opportunities based on trends and patterns seen on a chart.
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.
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.
Important information: Powered by Finder.com.au. This information is general in nature and is no substitute for professional advice. It does not take into account your personal situation. This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for most investors. You do not own or have any interest in the underlying asset. Capital is at risk, including the risk of losing more than the amount originally put in, market volatility and liquidity risks. Past performance is no guarantee of future results. Tax on profits may apply. Consider the Product Disclosure Statement and Target Market Determination for the product on the provider's website. Consider your own circumstances, including whether you can afford to take the high risk of losing your money and possess the relevant experience and knowledge. We recommend that you obtain independent advice from a suitably licensed financial advisor before making any trades.
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To make sure you get accurate and helpful information, this guide has been edited by David Gregory as part of our fact-checking process.
Tom Stelzer is a publisher and writer for Finder, covering investing and cryptocurrency.
He previously worked for Finder as a writer in Australia and the UK, covering things like personal finance, loans, investing, insurance as well as small business and business loans.
He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney. See full bio
Cameron Micallef was an investment and utilities writer for Finder. He previously worked on titles including Smart Property Investment, nestegg and Investor Daily, reporting across superannuation, property and investments. Cameron has a Bachelor of Communication and Media Studies/ Commerce from the University of Wollongong. Outside of work Cameron is passionate about all things sports and travel. See full bio
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