How to Read Forex Charts: 3 Reading Tips for Beginners

The Forex market is the largest financial market in the world with a trading volume of over 7,500 billion USD daily, according to statistics from the Bank for International Settlements (BIS). However, many newcomers often find it difficult to read Forex charts and don't know how to identify price trends.

Properly understanding how to read Forex charts is a crucial step that helps traders recognize the movements of currency pairs, thereby predicting trends and making appropriate buying and selling decisions. By grasping the basic principles, you can quickly understand whether the market is rising, falling, or moving sideways.

In this article, you will be guided on how to read Forex charts in a simple, easy-to-understand manner, especially suitable for beginners. You will also learn the differences between the three most popular chart types: Japanese candlestick charts, line charts, and bar charts – tools that most traders worldwide use to analyze the market.

Tip 1: How to read Forex candlestick charts for beginners

Step 1: Choose a currency pair to read the Forex chart

Understand the principles of currency pairs in Forex

• In the Forex market, currencies are always traded in currency pairs, not individually.

• Each Forex chart shows the relationship between two currencies: the base currency and the quote currency.

• For example, with the EUR/USD pair, the chart shows how many USD 1 Euro can buy at that time.

• When the price rises, it means EUR is strengthening against USD. When the price falls, USD is strengthening against EUR.

Choose suitable currency pairs for analysis

• The first step when learning how to read Forex charts is to choose the right Forex currency pair you want to monitor.

• Each currency pair has different levels of volatility, liquidity, and trends, so choosing the right pair will help with more accurate analysis.

• Beginners often start with major pairs because they have higher trading volumes and clearer data.

Compare multiple pairs to assess currency strength

• If you want to assess the strength of a currency, you should look at its chart in multiple currency pairs.

• For example, to assess the strength of the USD, you can look at:

  • EUR/USD

  • GBP/USD

  • USD/JPY

• When a currency rises or falls across multiple pairs, you will more easily recognize the Forex market trend.

View currency pair types on the trading platform

• Depending on the Forex trading platform or broker you use, the list of currency pairs may vary.

• Typically, there are two common groups:

  • Major pairs

    • Examples: EUR/USD, GBP/USD, USD/JPY

    • High liquidity, easy to analyze, and most used by traders.

  • Minor pairs or Cross pairs

    • Examples: AUD/CAD, EUR/GBP, NZD/CAD

    • Do not contain USD but still reflect the relationship between major economies.

Clearly understanding how to choose Forex pairs and read their charts will help you quickly recognize price trends, thereby making more accurate trading decisions in the foreign exchange market.

Step 2: Choose a timeframe when reading Forex charts

Understand timeframes in foreign exchange charts

• When learning how to read Forex charts, the next important step is to choose an appropriate timeframe.

• The timeframe indicates how the exchange rate between two currencies changes over time.

• Each type of foreign exchange chart displays data over a specific period, such as:

  • 1 minute

  • 5 minutes

  • 1 hour

  • 1 day

The shorter the timeframe, the more detailed the price movements. A longer timeframe helps to clearly see the overall Forex market trend.

How candles work in Forex candlestick charts

• In a Japanese candlestick chart, each candle represents a specific period you have chosen.

• A single candle fully displays price information during that period, including:

  • Open price: the price at the beginning of the period.

  • Close price: the price at the end of the period.

  • High price: the highest price reached.

  • Low price: the lowest price during that period.

Thanks to these four pieces of information, traders can quickly assess price movements and market sentiment.

Example of how data is displayed on a Forex chart

• Suppose you set the Forex chart timeframe to 24 hours.

• If each candle represents 1 hour, then the chart will have:

  • 24 candles, corresponding to 24 hours of trading.

• Each candle will show the entire exchange rate fluctuation of the currency pair during that 1 hour.

This display helps traders clearly observe the market's upward, downward, or consolidating momentum.

How to read price movements on the chart

• On a Forex chart, the position of the candlesticks shows the change in the exchange rate between two currencies over time.

• Typically:

  • Horizontal axis (X) displays time.

  • The vertical axis (Y) displays the exchange rate level of the currency pair.

As candlesticks move up or down over time, traders can identify Forex price trends and make more appropriate trading decisions.

Step 3: Distinguish between bullish and bearish candles

Understand the two basic candle types in Forex charts

• When learning how to read Forex candlestick charts, you need to recognize the two most important candle types: bullish candles and bearish candles.

• These two candle types indicate whether the price of the currency pair is rising or falling over a specific period.

• This is fundamental knowledge that helps traders understand price trends on foreign exchange charts before conducting deeper analysis.

What is a bullish candle?

• A bullish candle appears when the closing price is higher than the opening price.

• This indicates that buying pressure is dominant in the Forex market.

• When looking at a candlestick chart, bullish candles typically have the following characteristics:

  • The candle body shows the price increase during the trading session.

  • The market has a positive sentiment or an upward trend.

  • Often appears in an uptrend of the Forex pair.

What is a bearish candle?

• A bearish candle occurs when the opening price is higher than the closing price.

• This indicates that selling pressure is stronger than buying pressure.

• On a Forex chart, bearish candles typically show:

  • A price decrease during the candle's timeframe.

  • The market has selling pressure or a downtrend.

  • Can signal price correction or a trend reversal.

Candle colors on Forex charts

• The color of bullish and bearish candles may vary depending on the Forex trading platform or charting software.

• The most common are:

  • Green bullish candles.

  • Red bearish candles.

• However, some platforms may display:

  • White bullish candles.

  • Black bearish candles.

Therefore, when using Forex trading software, you should check the chart legend or key to understand the exact meaning of each candle's color before analyzing the market.

Step 4: How to Read Forex Candle Structure

Understand the components of a candlestick

• When learning how to read a Forex candlestick chart, you need to understand the structure of a candlestick.

• Each candlestick represents the price movement of a currency pair over a specific timeframe.

• A candlestick in a forex chart consists of two main parts:

  • Candle body

  • Candle wick/shadow

Understanding these parts helps traders quickly identify price movements and Forex market trends.

The candle body shows the open and close prices

• The candle body is the rectangular part in the middle of the candlestick.

• This section indicates the open price (Open) and close price (Close) of the currency pair during the selected timeframe.

• You can determine the open and close prices based on the candle's color:

  • Bullish candle: close price is higher than the open price.

  • Bearish candle: close price is lower than the open price.

By observing the length of the candle body, traders can assess the strength of the price trend.

Wicks indicate the highest and lowest prices

• The thin lines extending above and below the candle body are called wicks or shadows.

• They represent price fluctuations outside the open and close ranges.

Specifically:

• Top of the upper wick: the highest price (High) during that period.

• Bottom of the lower wick: the lowest price (Low) during that period.

Thanks to these two pieces of information, traders can clearly understand the fluctuation range of the Forex currency pair during the trading session.

How to determine open and close prices by candle type

• Depending on whether it's a bullish or bearish candle, the open and close price positions will differ:

  • Bullish candle

    • Bottom of the candle body: open price

    • Top of the candle body: close price

  • Bearish candle

    • Top of the candle body: open price

    • Bottom of the candle body: close price

Correctly understanding candlestick structure in Forex charts helps you quickly read price movements, buying/selling pressure, and market trends, thereby making more accurate trading decisions.

Step 5: Identify Forex Candlestick Patterns

Understand the meaning of candlestick patterns in Forex

• Once you've grasped how to read a Forex candlestick chart, the next crucial step is to identify candlestick patterns.

• Candlestick patterns help traders understand market psychology and the potential price movements of currency pairs.

• Many candlestick patterns are named in an easy-to-remember way, making Forex chart analysis more intuitive.

• When you correctly recognize a pattern, you can more accurately predict the upward or downward trend of the forex market.

Big candles indicate strong trends

• Big candles are candlesticks with long bodies, indicating strong price movements during the trading period.

• This type of candle often indicates that the current trend is continuing.

How to interpret signals from big candles:

• Large bullish candles

  • Indicate strong buying pressure.

  • The uptrend is likely to continue.

  • Traders often view this as a buy signal.

• Large bearish candles

  • Indicate strong selling pressure.

  • The downtrend may continue.

  • Traders may view this as a sell signal.

In Forex technical analysis, large candles often appear when the market has strong news or large capital inflows.

Doji candles indicate market indecision

• Doji candles are candles with a very small body or almost no body.

• This occurs when the open and close prices are nearly equal.

Meaning of Doji candles in a Forex chart:

• The market is lacking a clear trend.

• Buying and selling pressure are balanced.

• Often appears when the market is awaiting new signals or is about to reverse.

In many cases, when encountering a Doji candlestick pattern, traders often:

• Temporarily stay out of the market.

• Wait for further signals from subsequent candles before deciding to trade.

Correctly identifying important Forex candlestick patterns like large candles or Doji candles will help you read forex charts faster and better understand market trends before placing trades.

Step 6: Place Candlestick Patterns in Chart Context

Observe the position of candlestick patterns on the chart

• Once you know how to identify Forex candlestick patterns, the next important step is to observe the position of the candle on the chart.

• A candlestick pattern can have different meanings depending on its position within the market trend.

• Therefore, when reading a forex chart, you always need to consider:

  • Whether the candlestick pattern appears at the beginning of a trend

  • In the middle of a trend

  • Or at the end of a trend

Placing candlestick patterns within the context of a Forex currency pair's trend helps traders accurately understand the signals the market is sending.

Example of interpreting signals from a Doji candle

• Suppose you see a Doji candle appear on a Forex candlestick chart.

• If this candle has:

  • A long upper wick

  • A very small body

  • And almost no lower wick

If this pattern appears at the top of an uptrend, it could indicate:

• Buying pressure is weakening.

• Sellers are starting to enter the market.

• The uptrend is likely to reverse to a downtrend.

This is why traders always analyze candlestick patterns in combination with Forex market trends instead of looking at individual candlesticks.

Combining multiple candlesticks to identify stronger patterns

• In Forex chart analysis, many candlestick patterns are formed from 2 or more consecutive candlesticks.

• These patterns often provide clearer trend signals than a single candlestick.

Common examples:

• Three White Soldiers

  • Consists of 3 consecutive bullish candles.

  • Often appears after a period of decline or consolidation.

  • Indicates strong buying pressure and an emerging uptrend.

When seeing this pattern on a Forex candlestick chart, many traders consider it a signal that the currency pair's exchange rate is steadily rising.

Tip 2: How to easily read a Forex line chart

Step 1: How to read a Forex line chart

Choose a currency pair to view the line chart

• When using a Forex line chart, the first step is still to choose the currency pair you want to analyze.

• Line charts are typically used to observe the overall trend of a Forex pair rather than analyzing each small fluctuation in detail.

• For example, when opening a chart for EUR/USD, the price line will show the change in the exchange rate between the Euro and the USD over time.

Because it is simple and easy to read, the Forex line chart is often used to identify bullish, bearish, or sideways market trends.

Understand the characteristics of Forex line charts

• Compared to Japanese candlestick charts or bar charts, line charts contain less information.

• Typically, line charts only display:

  • The closing price of the currency pair at each time interval.

• These closing price points are connected to form a continuous line on the chart.

This allows traders to quickly identify:

• A bullish trend in the Forex market

• A bearish trend in the currency pair

• Or a sideways market phase

Compare multiple currency pairs to assess currency strength

• A common way to assess the strength of a currency is to look at its chart in various currency pairs.

• For example, if you want to analyze the strength of the USD, you can look at pairs such as:

  • EUR/USD

  • USD/JPY

  • USD/CNY

• When the USD strengthens, you will often see:

  • EUR/USD falling

  • USD/JPY rising

This comparison helps traders better understand the global Forex market trend.

Using line charts to identify market trends

• Many traders use Forex line charts as a first step to identify major market trends.

• After identifying the trend, they then switch to Forex candlestick charts for more detailed analysis.

A common tip in Forex chart analysis is:

• Observe line charts of major currency pairs.

• From there, identify the general market trend and which currency capital is flowing into.

This approach helps you understand the broader market before making specific trading decisions.

Step 2: Choose a timeframe for the line chart

Determine the appropriate timeframe

• When using a Forex line chart, you need to select the analysis timeframe before reading the data.

• The timeframe determines how long the chart displays exchange rate fluctuations.

• Depending on the Forex trading platform, you can choose various time intervals such as:

  • 1 day

  • 1 week

  • 1 month

  • 1 year

Typically, Forex line charts are used to observe long-term trends, so traders often choose longer timeframes.

Why use longer timeframes

• Line charts only display one main data point: the closing price of the currency pair at each time interval.

• Because the information is simpler than Forex candlestick charts, using longer timeframes makes it easier to identify:

  • Long-term upward trends

  • Long-term downward trends

  • Forex market fluctuation cycles

Longer timeframes help eliminate short-term price noise, thus providing a clearer overall picture of the Forex market.

Identify major trends on the chart

• When viewing Forex line charts over a long period, traders can identify major patterns or trends that are difficult to see on shorter timeframes.

• For example:

  • An uptrend lasting several months.

  • Market accumulation phase before a breakout.

This is why many traders often use line charts to identify the main trend, then switch to Forex candlestick charts to find more precise entry points.

Step 3: Choose the price type in the Forex line chart

Understand price types in Forex charts

• When using a Forex line chart, you need to determine the type of price used to plot the price line.

• In the Forex market, each trading period typically has 4 main price types:

  • Open price

  • High price

  • Low price

  • Close price

In most trading platforms, the default line chart uses the closing price to represent the movement of the Forex pair over time.

Why the closing price is often used

• The closing price is considered by many traders to be the most important price level in a trading session.

• The reason is that it reflects the final outcome of buying and selling pressure during that period.

When reading a Forex line chart, using the closing price helps:

• Identify market trends more clearly.

• Eliminate small fluctuations within the session.

• Easily track the upward or downward trend of a currency pair.

Compare multiple price types to understand market volatility

• Some platforms allow you to create line charts based on other price types such as:

  • High price

  • Low price

  • Open price

• By comparing multiple Forex line charts simultaneously, you can better understand the degree of market volatility.

For example:

• Compare the high price line with the low price line over the same period.

• If the distance between the two lines is large, it indicates that:

  • The market is highly volatile

  • The exchange rate of the currency pair changes significantly during the trading session.

Conversely, if the two lines are close, the market is usually stable or has low volatility.

Application in Forex trend analysis

• Choosing the right price type in Forex charts helps traders better understand exchange rate fluctuations and market trends.

• Many traders often:

  • Use the closing price to determine the main trend.

  • Additionally use high and low prices to assess the volatility of the currency pair.

This combination makes reading Forex charts more accurate and comprehensive when analyzing the forex market.

Step 4: How to identify trends on a Forex line chart

Observe the overall trend of the price line

• When using a Forex line chart, the most important thing is to look at the entire chart instead of small fluctuations.

• During its movement over time, the price line often has many short-term increases and decreases.

• However, what traders need to pay attention to is the overall trend of the currency pair.

You should ask yourself simple questions when reading a Forex chart:

• Is the price line gradually increasing over time?

• Is the price line gradually decreasing?

• Or is the market ranging and without a clear trend?

Accurately identifying the Forex market trend is a crucial step before making trading decisions.

Recognize three basic types of trends

• When analyzing line charts in Forex, you typically encounter three main types of trends:

  • Uptrend

    • The price line tends to move upward over time.

    • The exchange rate of the currency pair is increasing.

  • Downtrend

    • The price line moves downward over time.

    • The price of the currency pair is decreasing.

  • Sideway trend

    • The price line fluctuates within a narrow range.

    • The market does not yet have a clear trend.

Understanding these three types of trends helps you read Forex charts faster and more accurately.

Combining line charts with other chart types

• Forex line charts are often used to identify the overall market trend.

• After identifying the trend, traders can use Forex candlestick charts or bar charts for more detailed analysis.

Practical example:

• If you see a downtrend in the last 24 hours on a candlestick chart.

• You can open a Forex line chart to check if:

  • The price is continuously decreasing

  • Or if it is just decreasing after a previous sharp increase.

This combination helps you understand the overall picture of the foreign exchange market, thereby making more informed trading decisions.

Tip 3: How to read a detailed Forex bar chart

Step 1: How to read a Forex bar chart

Select a currency pair for analysis

• When using a Forex bar chart, the first step is to choose the currency pair you want to monitor.

• Similar to Forex candlestick charts and line charts, bar charts also display the exchange rate between two currencies.

• This exchange rate indicates how many units of the second currency you can buy with one unit of the first currency.

For example:

• For the EUR/USD pair, the chart shows how many USD 1 Euro can buy.

• When the price increases, it means the Euro is stronger against the USD.

Understand the information each price bar represents

• Each bar on a Forex bar chart represents price movements within a specific timeframe.

• Each bar contains all 4 important price data points for the market:

  • Open Price

  • High Price

  • Low Price

  • Close Price

• Thanks to these four price levels, traders can assess the fluctuations of the currency pair in each trading session.

How to read the structure of a price bar

• On a Forex bar chart, each price bar usually has three parts:

  • Vertical line

    • Represents the price range from lowest to highest during the session.

  • Horizontal tick on the left

    • Represents the open price.

  • Horizontal tick on the right

    • Represents the close price.

• By looking at the position of these two horizontal ticks, traders can understand if the price is increasing or decreasing during that period.

Difference between bar charts and line charts

• One difference of a Forex bar chart compared to a line chart is that:

  • The bars are not connected.

  • Each bar represents an independent timeframe.

• Meanwhile, line charts connect price points to show the overall market trend.

By providing complete Open – High – Low – Close data, Forex bar charts are often used in technical analysis to understand the price movements and trends of currency pairs.

Step 2: Choose the timeframe in a Forex bar chart

Understand timeframes and the duration of each bar

• When reading a Forex bar chart, you need to identify two important factors: the overall timeframe and the duration of each bar.

• These two factors help you understand how the exchange rate of the currency pair changes over time.

Specifically:

• Overall timeframe: the entire period you want to analyze the market.

• Duration of each bar (interval): the time that each price bar represents on the chart.

Choosing the right timeframe helps you read Forex charts accurately and in line with your trading goals.

Example of setting up a timeframe

• Suppose you want to analyze the fluctuations of a currency pair over 24 hours.

• You can set each price bar to represent 1 hour.

In that case:

• The chart will have 24 price bars.

• Each bar will show the open, high, low, and close prices for 1 hour.

This display method helps traders monitor the fluctuations of Forex currency pairs throughout different periods of the day.

How to read the timeline on the chart

• On a Forex bar chart, the timeline is typically displayed in equal intervals.

• Each time point corresponds to one price bar on the chart.

This allows you to:

• Monitor exchange rate changes by hour, day, or week.

• Identify uptrends or downtrends of currency pairs within the selected timeframe.

Application in Forex analysis

• Adjusting the timeframe in a Forex chart helps traders analyze the market flexibly.

• For example:

  • Short timeframes help observe intraday fluctuations.

  • Long timeframes help identify major trends in the forex market.

By appropriately combining timeframes and bar charts, you can better understand exchange rate fluctuations and Forex currency pair trends before making trading decisions.

Step 3: How to identify high and low prices in a bar chart

Identify the highest and lowest prices of each bar

• When reading a Forex bar chart, each price bar represents the fluctuation of the currency pair over a specific period.

• On each bar, you can easily identify the highest and lowest prices of the trading session.

Reading is very simple:

• The top of the vertical line on the price bar is the highest price (High) during that period.

• The bottom of the vertical line is the lowest price (Low).

These two price levels indicate the fluctuation range of the Forex currency pair during the trading session.

Understanding the meaning of price range

• The distance between the highest and lowest prices shows the degree of volatility in the forex market.

For example:

• If the distance is large:

  • The market has high volatility.

  • The price of the currency pair changed significantly during that period.

• If the distance is small:

  • The market is more stable.

  • Price fluctuations are relatively low.

This information helps traders assess the risk level and volatility of a currency pair.

Using bar positions to identify trends

• In addition to looking at individual bars, you also need to observe the position of price bars over time.

• When reading a Forex chart, the change in bar positions will indicate the trend of the exchange rate.

For example:

• If the price bars gradually increase over time, it indicates:

  • An uptrend

  • The currency pair's exchange rate is rising.

• If the price bars gradually decrease, the market may be in a downtrend.

Combining observations of the highest price, lowest price, and the position of the bars helps traders better understand the fluctuations and trends of the Forex market.

Step 4: Compare open and close prices in a bar chart

Identify the open and close price positions

• In a Forex bar chart, in addition to the highest and lowest prices, each bar also displays the open and close prices of the currency pair.

• These two price levels are indicated by two small horizontal dashes on the price bar.

How to identify:

• The horizontal dash on the left of the bar is the open price (Open).

• The horizontal dash on the right of the bar is the close price (Close).

Thanks to these two indicators, traders can understand price movements during each trading period.

How to determine if the market is trending up or down

• By comparing the positions of the open and close prices, you can tell whether the market is rising or falling during that period.

Specifically:

• Bearish market

  • The open price dash on the left is higher than the close price on the right.

  • This indicates that the price fell during the trading session.

• Bullish market

  • The close price dash on the right is higher than the open price on the left.

  • This indicates that the price increased during that period.

This simple comparison helps traders quickly understand the short-term trend of a Forex currency pair.

Colors in bar charts

• Some Forex trading platforms will use different colors or shades for the price bars to help users quickly identify the market.

Common examples:

• Green: bullish trading session.

• Red: bearish trading session.

However, each platform may use different color conventions, so you should check the chart's legend or key to accurately understand the meaning of the colors before analyzing the Forex chart.

Step 5: Identify the overall trend on a bar chart

References

1. MyForexChart. How to Read Forex Charts. Retrieved from: https://www.myforexchart.com/how-to-read-forex-charts
2. Forex Training Group. Learn to Read Forex Candlestick Charts Like a Pro. Retrieved from: https://forextraininggroup.com/learn-read-forex-candlestick-charts-like-pro/
3. BabyPips. Types of Forex Charts. Retrieved from: https://www.babypips.com/learn/forex/types-of-charts
4. Benzinga. How to Read Forex Charts. Retrieved from: https://www.benzinga.com/money/how-to-read-forex-charts/
5. Lokenauth, Andrew. Finance Executive. Expert Interview.

Translator: Lesley Collins Tran.