How to use charts in forex trading
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As experienced traders know, forex chart analysis is essential to make profits in the stock market. Chart analysis may seem too complicated or even obscure to you, but our article will certainly make you review your judgment.
In this article, we will discuss how to use forex charts, and we'll go through everything you need to know to trade efficiently using trading charts, such as:
- What is a trading chart?
- The different types of trading charts
- How to read a trading chart?
- The basics of chart analysis
Forex chart definition - What is a trading chart?
A trading chart allows a trader to view the history of prices of a financial instrument in the past. A forex chart is a trading chart dedicated to currency pairs, allowing a trader to view the history of exchange rates between two currencies. Trading charts are constructed on two axes: the price (indicated on the vertical axis) and the time (indicated on the horizontal axis).
You can find trading charts on online trading platforms, such as MetaTrader 4.
Most brokers provide a free chart analysis software to clients who have a trading account. Trading charts are an essential tool for traders. They provide useful information to perform technical analyses on a financial instrument, in order to determine where and when to invest capital.
Stock market charts are an essential tool for traders who want to use technical analysis to determine where and when to invest their funds. Indeed, short term forex traders rely more on technical analysis than fundamental analysis.
The different types of charts in trading
Forex charts represent the fluctuation of currency prices. Information given by these charts allows traders to find trading signals, related to the activity of a currency.
On most trading platforms, we can find three different types of charts:
- Line charts
- Bar charts
- Japanese candlestick charts
These are the charts most commonly used by traders, and most known within the forex community.
You can go even further by adding to your MetaTrader 4 platform the Supreme Edition chart tools offered by Admiral Markets.
Forex line charts
The forex line chart is a very basic type of price representation that displays information as a series of points linked by straight line segments. Most of the time, forex line charts are used to visualize trends over long a period of time.
Source: Line chart, EURUSD in H1, MetaTrader 5 Admiral Markets Supreme Edition, 19th of March 2019.
The efficiency of the line chart lies in its simplicity: it allows traders to easily view the closing prices for a currency pair at a specific time. These are the easiest charts to understand: on a line chart, prices are displayed on the right side, and dates at the bottom.
However, forex line charts do not provide you with information on price openings, highs, and lows over a specific period of time. Offering few details, line charts are still rarely used by traders. It essentially provides information on market trends.
The professional trading tools of the Supreme Edition are also available for MetaTrader 5, with all types of trading charts.
Trading bar charts
The forex bar chart allows traders to get information instantly on price variations over a given period of time. It provides more information than the line chart.
In addition to the closing price, the bar chart shows the opening price, the highest, and the lowest over the chosen period of time, which can be a day, an hour, a week, etc.
Source: Bar chart, EURUSD in H1, MetaTrader 5 Admiral Markets Supreme Edition, 19th of March 2019.
Forex bar charts are composed of four elements:
- Open - The opening market price. It is symbolized by a horizontal line on the left of the vertical bar
- High - The highest point of the vertical bar
- Low - The lowest point of the vertical bar
- Close - The closing market price. It is symbolized by a horizontal line on the right of the vertical bar
On forex bar charts, the length of each bar (or vertical line) indicates the price movement over a trading period for a given currency pair. Therefore, bar charts are mostly used to observe the volatility of a market: the longer the bars, the more volatile the market.
Japanese candlestick charts
There are several types of charts to trade the forex market. The Japanese candlestick chart is the one that most traders around the world use. A candlestick chart is an effective chart to describe the price movements of a currency or any other financial instrument.
Source: Japanese candlestick chart, EURUSD in H1, MetaTrader 5 Admiral Markets Supreme Edition, 19th of March 2019.
With the possibility of being used on different time frames, candlesticks provide four key pieces of information for a given period:
- The opening price
- The closing price
- The highest price reached over a period of time
- The lowest price reached over a period of time
In forex, Japanese candlestick charts are frequently used in technical analysis to analyze the behavior of currency pair prices.
In this article, we will explore the art of correctly reading candlestick charts - and explore how to understand them so that they can help you in your daily trading activity.
Forex Japanese candlestick charts are the most popular charts for forex traders, and for good reasons: they provide complete and accurate information on market evolutions.
The forex Japanese candlestick chart provides almost the same information as the bar chart, but the first one is much more used by traders because it is a lot more visual and more natural (and therefore faster) to read. Reading a forex chart quickly is essential to avoid missing out on trading opportunities.
Best forex charts - Which type of trading chart to choose?
The profitability of your forex trading activity depends on your ability to make the right decisions, at the right time. Trading charts are essential to determine when it is best to trade and open positions.
Choosing between the line chart, the bar chart and the Japanese candlestick chart is not easy. You are probably wondering which one is the best forex chart? In fact, each type of chart provides you with specific information, and it will sometimes be necessary to consult several types of charts to optimize your chances of making a profit from the forex market.
- Line charts are useful for reading a general market trend
- Bar charts are useful for observing market volatility
- Japanese candlestick charts are useful for making trading decisions
Source: EURUSD H1 chart, MetaTrader 5 Admiral Markets Supreme Edition, 19th of March 2019.
In general, experienced traders use forex Japanese candlestick charts, which give them accurate and technical information on price movements. However, we recommend that you try all the available tools to find out the one that suits you the best. In order to develop an effective trading strategy and achieve your financial objectives, there is nothing better than trying to interpret different types of charts.
How to read a forex chart in real time
As mentioned above, the function of candlesticks is to represent price movements on a given time frame. In addition, they can provide useful information such as market sentiment, or potential trend reversals through specific patterns. Understanding this is an excellent start on how to use charts in trading.
To understand candlestick charts, you need to know what the price movement is, which is not just a line but a series of candlesticks.
Source: DAX D1 chart, MetaTrader 5 Admiral Markets Supreme Edition, 19th of March 2019.
Forex traders prefer candlestick charts because they show much more information than line charts, and can, therefore, be much more useful for making trading decisions.
In concrete terms, if we display a candlestick chart on a 30-minute time frame, each candlestick will take 30 minutes to form itself. Similarly, if the chart is on a 15-minute time frame, the formation of a candlestick will take 15 minutes.
Let's take a real example. We have two charts showing the evolution of the price for the EURUSD currency pair over a period of one hour. The first with 15-minute candlesticks, and the other with 5-minute candlesticks.
On the 15-minute chart, the one-hour time period is displayed through 4 candlesticks.
On the 5-minute chart, there are 12 candlesticks for the same period of time. It's a way to "zoom in" and get more details on what happened during this specific hour.
Thus, if both charts represent the price action of the same asset over an hour, the 5-minute time frame will show a much longer quotation history than the 15-minute time frame. However, the 5-minute time frame will have more details.
To learn more about candlesticks, you can refer to the article on forex Japanese candlestick charts.
Where to find real-time forex charts?
The fastest and easiest way to get free real-time forex charts is to download a trading platform. In addition, you will have graphical tools to perform your technical analyses and forecasts.
The vast majority of retail traders use the MetaTrader 4 trading platform to study forex charts. The new version of MetaTrader 5 is also gaining in popularity among new traders.
The MetaTrader chart software is available on multiple devices. You can download and use them on Windows, Mac, Android, and iOS. You can look at your charts and analyses on your computer at home or at your office, or anywhere with your smartphone or tablet.
Consult here all the installation and user guides for the MetaTrader chart platforms.
Source: MetaTrader 5 Supreme Edition Admiral Markets chart platform.
Source: Android mobile chart application MT4
If you do not want to download free chart software, you can view your charts in real time directly on your browser, thanks to the MetaTrader WebTrader.
Besides trading platforms, it is possible to consult a real-time chart of all our financial instruments. All you have to do is go to the details of the desired instrument, to view its real-time chart as well as the spread.
Source: Real-time Euro Dollar chart, 19th of March 2019.
At Admiral Markets, we do not stop there and provide our clients with additional advanced graphic tools not included in the standard version of MetaTrader: these are the Supreme Edition tools, including the Mini Chart and the tick chart.
How to add the Mini Chart graphic tool to your MT4 trading platform
The Mini Chart tool allows you to have a smaller chart in your main MetaTrader chart.
To add the Mini Chart indicator to your MT4 trading chart, you just have to:
- Click on the "Navigator" shortcut, located on the MT4 platform toolbar, at the top left of your computer's screen
- Go to the "Indicators" section
- Select or drag the "Admiral Mini Chart" indicator on the chart
- Be sure to check the box "Allow modification of Signals settings"
- Click on "Ok"
That's it; you have displayed the MetaTrader 4 Supreme Edition Mini Chart indicator on your trading chart!
By default, the time frame of the Mini Chart is the same as the MT4 trading chart on which you add the indicator.
How to display multiple time frames on a single MT4 trading chart
Thanks to the Mini Chart indicator, you can select the time frame of your choice in order to display it within your reference chart, the one you are on.
Like any indicator, it is possible to modify the parameters of the MetaTrader 4 Supreme Edition Mini Chart indicator:
- Right-click somewhere on the main trading chart
- Select "Indicators List"
- In the "Indicators on.." window, select the "Mini Chart" indicator
- Click on "Edit"
Now, the MT4 Mini Chart indicator settings are open.
In order to apply a different time frame from your main chart's one, only the line "Chart timeframe / type" is of interest here.
The Mini Chart indicator has many useful features that you can find in the MT4 Supreme Edition video: Mini Chart.
Here is the procedure to follow:
- Double click on "(current)" at the end of the "Chart timeframe / type" line
- You will then see a list of time frames appear
- Select the time frame you want
Example: if your main chart is on a 5-minute time frame, you can select the 30-minute time frame in the Mini Chart indicator to get a visual of the background trend.
- Then, click on "OK"
You now have two different time frames on the same MT4 trading chart: the 5-minute time frame which is on your main chart, and the 30-minute time frame on the Mini Chart indicator.
You have probably understood by now that to display several time frames on a single MT4 trading chart, you just need to repeat the following operation:
- Add the Mini Chart indicator to your main chart
- Select the time frame you want
- Then, click on "OK"
It's that simple!
The best chart analysis tip
You can add this MetaTrader 4 Supreme Edition indicator as many times as you want on the same chart.
For example, you can add the Mini Chart indicator six times to display most time frames on the same chart:
- Mini Chart W1 (weekly)
- Mini Chart D1 (daily)
- Mini Chart H4 (4 hours)
- Mini Chart H1 (1 hour)
- Mini Chart M30 (30 minutes)
- Mini Chart M15 (15 minutes)
All on an M5 trading chart (5-minute time frame).
The Mini Chart indicator has the ability to add indicators with different parameters on each small chart to help you in your trading by facilitating your analyses.
This means that you can have fewer open charts, and more information gathered on a single MT4 trading chart.
One trading chart - Several time frames!
All you have to do is go to the parameters of each Mini Chart to find and select the lines:
- INDICATOR 1
- INDICATOR 2
It is possible to add up to 10 indicators per mini chart!
Once on the "Indicator Type" line:
- Double click on "(none)"
This will allow you to choose between 12 different technical indicators:
- Bollinger Band
- Envelopes (SMA)
- Envelopes (EMA)
- D1 High & Low
- H1 High & Low
- Linear Regression
- Price Level
- Current Bid Price
Of course, the addition of all these windows with their respective indicators does not prevent the chart analysis of the main indicator.
You can test the Admiral Markets expert advisors (EA) for free. You just need to connect with your free Admiral Markets demonstration account to get access to real financial market conditions, safely and at no cost!
Trading on several time frames at the same time does not necessarily mean using several charts at the same time. An alternative solution exists and may be simpler for practical reasons.
Indeed, a forex trader who wants to develop a simple and easy system to test will need to incorporate data from one or more higher time frames into a single chart. This is how the "MTF" indicators were created, i.e., Multi Time Frame.
The Supreme Edition of MetaTrader 4 and MetaTrader 5 have the 5 best trading indicators, some of which are able to display information about time frames higher than the chart you are on.
For example, the indicators:
- Admiral Donchian
- Admiral Pivot Point
Unlike all the types of charts we have seen so far, tick charts are not related to time.
On the chart of a security (representing the history of its price), each candlestick represents a certain period of time, for example, 1 hour. In this case, a new candle is drawn every hour. Tick charts, on the other hand, draw a new candle according to a number of transactions (without taking into account the size of each transaction) on the chart, for example, every 100 transactions.
Thus, since candlesticks are a function of market activity rather than time, it is easier to distinguish active and quieter periods. This allows traders to be more active in the markets during periods of high trading volumes, and to stay away when activity is lower.
Typically, during very quiet periods, there will be far fewer candlesticks formed on tick charts than on charts related to time. This makes chart analysis much more efficient.
In addition, in the event of a sudden movement or technical breakout (or breakdown) following a chart pattern, the tick chart will give a signal much faster, assuming that you have to wait for the candle to close.
The disadvantage is that on time related charts, we know that the current candlestick will close exactly in x minutes, but on a forex tick chart, it is impossible to know when a candle will close. Therefore, it requires greater attention from the trader.
Tick Chart Trading with MetaTrader 4
Tick Chart Trader is an application that shows a forex tick chart in a wide range of styles and allows fast tick trading using the keyboard or the mouse.
To do this, download MT4 Supreme Edition, and make sure that MetaTrader 4 is closed during installation.
When you restart MetaTrader 4 after installation, the application will allow you five styles of charts:
- 1.Forex tick chart
- 2.Forex tick speed
- 3.Timed tick chart
- 4.Forex tick candle
- 5.Versus chart
The Tick Chart Trader application also allows to:
- 1.Provide an ultra-fast market entry and exit opportunity
- 2.Use a First in, First out (FIFO) basis
- 3.Be used with the keyboard or the mouse.
Technical indicators on trading charts
Technical analysis can be used by beginner traders, as well as experienced traders in the stock market. It is strongly recommended to use charts to perform analyses and take trading positions. To do this, it is sufficient to use the simplest indicators, including:
- Fibonacci retracements or pivot points, easily identifiable chart indicators to see which price levels are most likely to react
- The RSI or MACD, statistical oscillators that indicate the direction and the strength of price movements
- Support and resistance levels, chart levels that represent thresholds on which prices react
The following video will teach you how to add technical indicators to the MT5 chart platform, to start performing chart analyses and trading on the financial markets.
The usefulness of volumes on a trading chart
Volume chart analysis is the technique of analyzing the strength of a trend, based on market activity and transaction volumes.
The volume represents the number of transactions recorded on a financial asset during a given period. It is used by short-term traders, but also by long-term investors. It provides an indication about the potential accuracy of a price movement.
Source: USDJPY D1 chart, with the Volumes indicator on the MT5 Supreme Edition, 24th of March 2019.
Volume analysis is very useful during these market phases:
- Technical breaks: when a chart pattern, a support, or a resistance is broken, the movement must be accompanied by a peak in volumes. Technical breakouts or breakdowns with low volumes are always suspicious and can provide false signals
- During a bullish trend, the volume must be higher during each rebound and lower during each correction or consolidation. Conversely, it must be the opposite in a bearish trend. Volume increases when the asset is evolving within its long term trend
Reading a forex chart – Conclusion
We have made this guide to discover some of the main technical analysis tools that are used by forex traders. Japanese candlestick charts are widely used because they can display a wide range of data in an instant. Line charts allow traders to identify the trend of a currency pair, which can be a good indicator for the direction it will take in the future.
In addition, chart patterns can be used to anticipate and then confirm future trends. For example, the head and shoulder pattern can help traders define whether a particular currency pair will experience a trend reversal. As you can see, understanding forex charts, as well as the different types of charts, is a considerable part of FX trading.
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