In order to understand how to read a forex chart the first thing that you are going to need to know are the basics of forex trading, basically how forex trading works. The reason for this is that how forex trading works relates directly to how to read a forex chart. So let's take a quick look at the basics of forex trading.

In forex trading each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, never the other way around. The reason for this is that EUR is the base currency and the USD is the terms currency. So if the chart of the chart of the EURUSD shows that the current price is fluctuating around 1.2155 this actually means that 1 Euro will buy about 1.2155 US dollars. The next thing that you need to know about forex basics is that your trade size (face value) is the amount of base currency that you are trading. An example of this is if you want to buy 100,000 EURUSD you are actually buying 100,000 EUROs.

Here are the five steps that you are going to need to follow so that you can learn how to read a forex chart.

Step one:
If you buy the currency pair, that is, you are to long the position what you need to realize is that you are looking for the chart of that type of currency to go up. The reason that you want it to go up is that you are trying to make a profit on the trade and if it doesn't go up you will not make a profit. So what you want is the base currency to strengthen against the terms currency.

But on the other side of the coin if you sell the currency pair to short the position then what you are looking for is the chart of that currency pair to go down so you can make a profit. Basically you want the base currency to weaken against the terms currency. So what you need to remember is if you are buying in the long position you want the chart to go up but if you are selling in the short position you want the chart to go down so that you can make a profit.

Step two:
Make sure that you always check the time frame that is displayed on the charts. The reason for this is that many trading systems will use multiple time frames to determine the entry of a trade. So you want to ensure that the chart you are looking at has the correct time frame for your analysis. And the best way to do this is to set up your charts with the correct time frames and indicators on them for the system that you are trading. You also want to make sure that you save it so that you can reuse the layout. Here is an example of how a system can use multiple time frames:

• Can use a 4 hour and 30 minute chart to determine the overall trend of the currency pair by using indicators such as MACD, momentum, or support and resistance lines. And then use a 5 minute chart to look for a rise from a temporary dip to determine the actual entry.

Step three:
Most forex charts it is the bid price rather than the ask price that is being displayed on the chart. But you want to remember that a price is always quoted with a bid and an ask, which is also called an offer. For example, the current price of the EURUSD may be 1.2055 bid and 1.2058 ask. So when you buy you are going to buy at the ask price, which is the higher of the two prices in the spread. And when you sell you are going to be selling at the bid price, which is actually the lower of the two prices. Some other things that you need to know about when it comes to the bid price and the ask price are:

• If you use the chart price to determine an entry or exit you need to realize that when you place an order to sell when the chart price is, 1.330, then this is the price that you will sell at, assuming that there is no slippage.
• If you place an order to buy when the chart price is the same price you are actually going to be buying at 1.3333.
• The forex system will more often than not determine whether your orders will be placed simply according to the chart price or whether you need to add a buffer when buying or selling
• When you are placing stop orders, on many platforms, you can select either "stop if bid" or "stop if offered". In this case stop orders are done to buy if the price rises above a certain price or sell when the price falls below a certain price.

Step four:
You also need t be aware of the fact that the times that are shown on the bottom of the forex charts are set to the particular time zone that the forex provider's charts are set to be. This can be GMT, EST, PST, etc. So it is actually very handy to have a world clock available on your desktop so that you can convert the different time zones to your own time zone. In fact this is important to do when you are trading major economic announcements. The reason for this is that you are going to need to convert the time of an announcement to your local time and the chart time to your local time so that you can be aware of when the announcement is going to happen. This makes you know when you are going to need to trade.

Step five:
You also need to check whether the times on your forex charts corresponds to when the candle opens or when the candle closes. This is important to do on yoru own because your charting software might be different from someone else's in this way. But the reason that you need to check this is because of trading major economic announcements. So if you need to trade major economic announcements, whether by entering a trade based on the movements that happen after the announcement or to exit a trade before the announcement to avoid getting stopped out doing it, then you are going to need to be precise because these trades are performed according to what happens at the 1 minute immediately after the announcement, not the candle afterwards.

But something else that you want to keep in mind when it comes to reading forex charts is that more often than people who are just starting out in forex trading make numerous mistakes because they do not understand how to read a forex chart. So by learning how to properly read a forex chart you can help prevent yourself from making the same mistakes that other beginners make. Now to mention that by learning how to read forex charts you will actually be speeding up your progress when you are looking at forex charting packages and forex trading systems that you want to trade.

Here is a look at some of the common mistakes that people make when it comes to forex charts.

Number one:
Forex charts predict. Many traders think that in order to make money that they need to predict, but predicting is simply hoping or guessing, which is the fastest way to lose. In using charts the correct way you trade on the reality of price change and trade it, not predictions.

Number two:
5 or 6 indicators must be better than 1 or 2, or the more indicators that you have the better your chances. This is way off base because in actuality the more inputs you have the higher your chances are that the system will break. In fact simple forex trading systems have been shown to work the best.

Number three:
Using invalid data. When it comes to forex trading you need to use technical analysis on valid date, this is so that you can get the odds in your favor. You never want to try and use forex day trading or scalping systems because the data is too short to be traded and all volatility is random.

Number four:
Use indicators in the wrong way. In fact more traders actually do this. What they do is use lagging indicators such as moving averages to enter price or Bollinger bands are stops, which is not what these indicators were intended to do. You want to ensure that you use an indicator for what it was intended and understand its limitations

Number five:
Curve fitting. As long as you keep your system simple you will actually avoid curve fitting. This is where you are tempted to back test and bend the rules to fit the data so that you can make a profit. In fact because of the powerful software packages available today it is actually very tempting to do. And if you do this what happens is that the system will collapse in real time trading because no two segments of data repeat themselves in the same way again.