Reading a currency chart is not as difficult as it seems. If you have experience in investing in stocks, you may certainly know how to do this. The impression of professionals doing their thing on the stock exchange’s floor may give you the impression that this can be done best by experts only. The truth is that merely reading the foreign exchange chart is simple and any layman can do it. What may need some expertise though is the analysis and the decisiveness in seizing opportunities offered in the market. Other than this, grasping the meaning of a chart’s presentation is, basically, elementary.
It does help if you have some background in finance and marketing. If not you will need to hone your skills before making accurate observations of the market movements and the corresponding motion of currencies against each other. There are basic rules to follow in reading the currency graph. Whatever type of chart it is, whether it is a bar chart or a line chart, these principles apply. Below are the steps to follow in reading it.
- A foreign exchange chart always has a pair of currencies being compared. The pair usually has a name with the first part of the name being the base currency and the latter part being the terms policy. In a EURUSD pair, for example, the Euro is the base currency while the USD is the terms currency.
- Currency pairs can tell the difference between the base currency and the terms currency. The base currency is always one while the terms currency can be variable. In the example above, if you have EURUSD 1.525, this means that you 1 EUR is equivalent to 1.525 USD.
- If you wish to buy the pair with the obvious purpose of profiting over a trade, then you would naturally want the base currency to gain strength over the terms currency. However, if you want to sell the pair instead, you would wish the currency pair to go down with base currency weakening compared to the terms currency.
- Pay attention always to the time-frame particular to the chart you are reading. Currency trends are never stagnant. It keeps changing. What once were losers yesterday could be gainers today. Sometimes, the changes can even occur in less than 24 hours. That is why it is important that you keep track of the time so that whatever decisions you will come up with will be based on real-time data. You will notice that the time zone used is always that of the FOREX provider. If it is a pound chart, most likely, it will have a time zone in England.
At first, you may commit mistakes in your reading, especially if the currency movements are too unstable. What is important is that you are always updated of whatever changes can happen in the currency chart. This will guarantee you a more precise analysis.