Learning to Read Forex Charts

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Learning to Read Forex Charts

It’s time to make my first trade and begin reading the forex charts!  But first I need to cover some of the basics of forex trading and how the forex charts work.

Buying and Selling Currency Pairs

One note on forex trading, you can both buy and sell currencies. I think buying is pretty intuitive, but selling threw me for a loop at first. Selling (or shorting as the cool kids say) is when you sell the first currency in a pair and buy the other. For example, say you want to sell 1000 Euros and buy Canadian Dollars (CAD) at the current exchange rate (assume it is 1.00). To do this you will short the EUR/CAD currency pair, which means you sell 1,000 Euros and get 1,000 CAD in exchange. Two weeks later the Euro/CAD currency pair trends down. This will mean that the exchange rate goes up (say to 1.10). Why? Because the Euro is now weaker than the Canadian Dollar and so you will receive more Euros in exchange for each CAD than you did when you first made the trade. You decide to close your trade and. sell your 1,000 CAD. At the new exchange rate (1.10), you will get back 1,100 Euros. Remember you originally had 1000 Euros, so you have made a profit of 10 Euros.

The basic idea is to sell when a currency pair trends down and buy when it trends up.

On Forex Charts

So where do you go when you want to find the current trend of a currency pair? To the forex charts! Here is an example of what a forex chart looks like:

FOREX.com. (2017). Forex Trader for Iphone (Version 2.9.12) [Mobile Application Software]. Retrieved from https://www.forex.com/en-us/services/trading-platforms/forextrader/mobile-apps

This forex chart is a line chart of the Euro/USD currency pair from the Forex.com app. The line chart is the most straight-forward forex chart available (no bells and whistles at the moment please!). Because I’m interested in long-term trends, I’m looking at a monthly forex chart (this means each point on the chart is equal to the exchange rate at the end of the month). You can also look at weekly charts (each point is equal to the exchange rate at the end of the week), daily charts (each point is equal to the exchange rate at the end of the day), and so on down to minute-level charts. Professional traders will use shorter timeframes, but I am not interested in paying that much attention to Forex. I just want to check on my trades once a week at most and not worry too much. Therefore, I will stick to the monthly charts.

Going back to the forex chart above: it looks like the general trend is down (the Euro is falling in value compared to the dollar), but I think it looks pretty choppy. I’m not going to short this pair.

Today’s Charts

Here are snapshots of the charts that look good to me today:

FOREX.com. (2017). Forex Trader for Iphone (Version 2.9.12) [Mobile Application Software]. Retrieved from https://www.forex.com/en-us/services/trading-platforms/forextrader/mobile-apps

This is the US Dollar (USD) to the Mexican Peso (MXN). It looks like the dollar is strongly trending up although recently there is a small blip down (no comment on the politics of this..). I still think this is a strong trend so I’m going to buy it.

FOREX.com. (2017). Forex Trader for Iphone (Version 2.9.12) [Mobile Application Software]. Retrieved from https://www.forex.com/en-us/services/trading-platforms/forextrader/mobile-apps

This is the US Dollar to the Turkish Lira (TRY). This currency pair appears to be strongly trending up, so I will buy it.

FOREX.com. (2017). Forex Trader for Iphone (Version 2.9.12) [Mobile Application Software]. Retrieved from https://www.forex.com/en-us/services/trading-platforms/forextrader/mobile-apps

This is the British Pound (GBP) to the Canadian Dollar. There appears to be a trend downwards, so I will short this pair. In fact all of the currency pairs with GBP appear to be trending at the moment, especially GBP/USD; however, both of my previous two trades have included the dollar as one of the currencies. I think it’s best not to make too many trades with any one currency in case that currency abruptly shifts trends, so I won’t touch the GBP/USD pair today.

Today’s Trades

USD/MXN – long 10000 pips

USD/TRY – long 10000 pips

GBP/CAD – short 10000 pips

You can see all of these trades are in pips. More on what a pip is later…

Erika

Erika

I was raised in a tight-knit Midwestern family with a strong commitment to service. An architect by training, I currently work in affordable housing finance. Prior to moving to NYC, I lived in Nicaragua for two years and have also spent time in West Africa and the Middle East. I started this blog as a way to catalog musings on travel and everyday life around the world.

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