Basics of Reading and Analyzing FX Charts

In FX trading, the ability to “read charts” is one of the essential skills for making profits. By visually understanding price movements, traders can grasp market trends and make more rational trading decisions. This article explains the basics of how to read charts and introduces representative analysis methods and chart patterns that even beginners can easily understand.

What Is an FX Chart? Its Role and Importance

An FX chart is a graph that displays currency pair price fluctuations over time. While “fundamental analysis” — such as economic news and indicator releases — is also important, many traders determine their buy and sell timing based on the information provided by charts. In other words, in FX, “understanding charts = understanding the market.”

Basic Types of Charts

There are several types of charts used in FX, but the most representative is the “candlestick chart.”

Candlestick Chart

Each candlestick represents four data points: “Open,” “High,” “Low,” and “Close.” Depending on the time frame (1-minute, 5-minute, 1-hour, daily, etc.), one candlestick represents a different period.

• Bullish candle (white or green): Closing price is higher than opening → Uptrend
• Bearish candle (black or red): Closing price is lower than opening → Downtrend

By observing multiple candlesticks in sequence, traders can visually recognize the direction of the market.

Basics of Technical Analysis

In FX trading, “technical analysis” — predicting future movements from past price data — is widely used. Here are some fundamental methods of analysis.

1. Trend Analysis

When looking at a chart, if prices move upward, it’s an “uptrend”; if they move downward, it’s a “downtrend”; and if they move sideways, it’s a “range” (consolidation).

• Drawing a trendline helps visualize market direction.
• Trading in the direction of the trend (trend-following) is considered a basic principle.

2. Support and Resistance Levels

• Support line: A point where price tends to stop falling
• Resistance line: A point where price tends to stop rising

By drawing these lines on the chart, traders can identify potential reversal points.

3. Pattern Analysis

Charts often show recurring “patterns” that can help predict future price movements.

• Double Top / Double Bottom: Signals reversal at a peak or bottom
• Head and Shoulders: Indicates the end of a trend
• Flag / Pennant: Suggests a temporary correction before trend continuation

Recognizing these patterns enables more accurate analysis.

Indicator-Based Supplementary Analysis

Indicators are mathematical tools based on past price data that assist traders in making decisions.

Representative Indicators

1. Moving Average (MA)
   Shows the average price as a line and helps identify trends.
   Crossovers between two MAs of different periods — Golden Cross or Dead Cross — are also key signals.
2. MACD
   A useful indicator for spotting trend strength and turning points.
3. RSI
   An oscillator-type indicator showing “overbought” or “oversold” conditions, helping assess market overheating.

Using Different Time Frames

It’s important to use different “time frames” according to your trading purpose and style.

• Scalping: 1-minute to 5-minute charts
• Day Trading: 15-minute to 1-hour charts
• Swing Trading: 4-hour to daily charts

By combining multiple time frames — a method called “multi-timeframe analysis” — traders can make more reliable judgments.

For more details on how to trade FX, please refer to this article.

Practice: Steps for Chart Analysis

Here are the steps beginners can follow when practicing chart analysis.

1. Open the chart
2. Check for a trend
3. Draw support/resistance lines
4. Look for chart patterns
5. Use indicators for confirmation
6. Set entry points and stop-loss levels
   
   

Conclusion: To Succeed in FX, Get Familiar with the Charts

To succeed in FX, you must develop the ability to correctly interpret price movements through chart analysis. It may seem difficult at first, but with daily practice, recognizing patterns and trends will become intuitive over time.

Start by carefully observing candlestick charts for your preferred time frame and currency pair. Making analysis a habit is the first step to improving your FX skills.

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