How to Read Forex Charts: A Beginner's Guide

What is a Forex Chart? 

A forex chart is a visual tool that tracks the price movement of a currency pair over time. It displays essential trading data like opening, closing, high, and low prices for each time frame, helping traders analyze trends and identify chart patterns. Forex trading charts can be viewed in different formats, such as line, bar, or candlestick. They are used to interpret price action, spot support and resistance levels, and make informed trading decisions.

How to Read Forex Chart? 

A forex chart visually displays the price action of a currency pair over time, helping traders spot market trends, chart patterns, and entry/exit opportunities. To read a forex chart, start by identifying three key elements: 

Currency pair

The chart title (e.g. EUR/USD) shows the base currency of the currency pair first and the quote currency second. It tells you how much of the quote currency is needed to buy one unit of the base currency. 

Price scale (y-axis)

The vertical axis shows price values. These reflect how the base currency moves relative to the quote currency.

Timeframe (x-axis)

The horizontal axis shows time intervals which range from minutes to months. This helps forex traders analyze short or long-term trends. 

Most forex trading charts use candlesticks, which represent price movements within each time period (e.g. 1 hour). Each candlestick shows the open, high, low, and close (OHLC) prices. Recognizing common forex chart patterns like double tops, flags, or triangles can help anticipate future market moves. 

Mastering how to read forex charts is essential for understanding price behavior, improving technical analysis, and making informed trading decisions.

Types of Forex Charts

#1 Line Charts

Line charts are the most straightforward type of forex chart. They plot a single line connecting the closing prices of a currency pair over a specific time frame. Their simplicity makes them ideal for beginners, as they focus solely on the closing prices, which many forex traders consider to be the most important data point.

Key Features:

Focus on closing prices

Provides a clear picture of overall price movement without the noise of price fluctuations during the day.

Ideal for long-term trend

Since they eliminate intraday volatility, line charts are useful for identifying longer-term trends.

Easy to read

Line charts offer a clean and uncluttered view of the market for those new to forex trading.

Although line charts are not commonly used by advanced traders for detailed analysis, they have found renewed relevance in swing trading and position trading, where traders are more focused on the broader direction of the market rather than short-term price action. Many long-term investors use line charts with other chart types to identify overall market trends.

#2 Bar Chart

Bar charts, also known as OHLC (Open-High-Low-Close), offer more information than line charts. Each bar represents the price movement over a specific period, such as a day or an hour, and includes the opening, high, low, and closing prices.

Key Features:

OHLC data

The four data points provide a more comprehensive view of market activity, helping traders understand how prices move during each time period.

Direction indicators

Bars are color-coded or shaded to show whether the price has risen or fallen over the period (green for up, red for down).

Volatility analysis

The length of the bars indicates how much volatility the market experienced within the period, making it easier to identify periods of high or low activity.

With the rise of quantitative and algorithmic trading strategies, bar charts are used extensively for backtesting and developing trading algorithms that rely on intraday volatility and price fluctuations. Bar charts provide the raw data for calculating volatility, moving averages, and other indicators commonly used in advanced trading systems.

#3 Candlestick Chart

Candlestick charts are the most widely used chart in forex trading today, offering a visual representation that is intuitive and rich in information. Each candlestick shows the opening, closing, and high and low prices for a specific period, similar to bar charts, but with a more engaging and detailed visual format.

Key Features:

Color-coded candles

Candles are color-coded to show whether the price closed higher or lower than the opening (typically green for bullish and red for bearish).

Pattern recognition

Candlestick patterns, such as Doji, Hammer, and Engulfing, are commonly used to predict market reversals and continuations.

Psychological insights

The length and body of the candle provide insights into market sentiment—whether bulls or bears are in control.

Candlestick charts have become popular, especially with the rise of technical analysis tools and indicators. Many modern trading platforms, including TMGM, offer advanced candlestick pattern recognition software, allowing traders to automate certain strategies based on candlestick patterns.

Combining candlestick charts with technical indicators such as the Relative Strength Index (RSI) or Moving Averages further enhances their effectiveness for forex day trading and swing trading.

Advanced Chart Types Gaining Popularity

While the three traditional chart types — line, bar, and candlestick — remain the most commonly used, advanced traders are increasingly adopting other types of charts, such as:

Renko Chart

Focus on price movement rather than time. Each "brick" represents a specific price movement, filtering out small price fluctuations and helping traders focus on the overall trend.

Heikin-Ashi Chart

A variation of candlestick charts that smooth out price fluctuations by using modified open-close data, making it easier to spot trends and reversals.

Point and Figure Charts

These charts plot price movements without considering time, using "X" and "O" to show price increases and decreases. This chart type is particularly useful for identifying long-term support and resistance levels.

While these advanced chart types are not as widely used as candlestick or bar charts, they are growing in popularity due to their ability to simplify complex price movements and reduce market noise.

How to Choose the Right Forex Chart?

Choosing the right chart depends on your trading style, the level of detail you need, and the time frame you are analyzing. Here’s a quick guide:

• Line Charts: Line charts are perfect for beginners or traders focusing on the bigger picture.
• Bar Charts: Bar charts offer more detail and are suited for traders analyzing short-term volatility.
• Candlestick Charts: Candlestick charts are ideal for technical analysis, especially for those who want to identify patterns and market sentiment.

For more advanced traders, incorporating Renko, Heikin-Ashi, or Point-and-Figure charts can add depth to their analysis and help identify hidden market trends.