charts are easy to interpret, especially for previous stock and
futures traders and investors. To see the price history of a stock
in chart form, a stock trader has to specify the ticker symbol of
the stock, the chart period (1 day, 1 hour, 15 minutes, etc.). In
the forex trading market, this charting process is no different,
with the exception that instead of specifying a ticker symbol, the
currency trader specifies the currency pair he wants to trade. For
example, a currency day trader can pull up a real time foreign exchange
chart of the euro versus the dollar using 30-minute periods. The
example below shows a snapshot of a real time 15-minute candlestick
chart of the euro versus the dollar (EUR/USD) currency pair taken
from our online currency trading system (sign
up for a free 30-day trial of the trading software today and practice
trading using different currency charts). [Interpreting charts
to trade is part of the FREE forex
training that we provide to customers].
rate chart above shows the price action during December 6, 2002.
On December 6th, the currency chart shows a strong move in the Euro
versus the U.S. Dollar, from a low of 0.9869 (about 8:30AM EST)
to 0.9975. This is a difference of 0.0106 or 106 pips (read
more information on the value of a pip for different currency pairs
profit and loss when trading currencies).
In dollars, this move is equivalent to an amount of US$1,060 per
contract (lot). The way we arrive at this figure is by multiplying
the standard value of one lot (100,000) by 0.0106 (each pip is worth
US$10 for the EUR/USD pair). Since the margin requirement provided
by Currency Trading USA is only $1,000 (i.e., 1% of the contract
value), a gain of $1,060 represents a return of approximately 106% if the minimum margin amount is taken into account.
Even though the move in the foreign exchange rate from 0.9869 to
0.9975 was only about 1.1%, with a 100 to 1 margin requirement,
it becomes a return of 106% (please note that the same move in the other direction could lead to a loss of the entire account. Increasing leverage increases risk). If you do not completely understand
the example above, please read the sections on how
to read a currency quote
and calculating profit
and loss in when trading the currency markets.
on FX Charts
If a day trader
takes a quick look at the chart below, he might mistake it for the
chart of a stock. He might argue that the chart depicts the daily
price action of a stock with a price of 124.50. In reality, the
picture below shows a daily candlestick chart of the U.S. dollar
versus the Japanese yen during a period of three months. On the
right axis, the number 124.50 is the last price of the USD/JPY currency
pair, which means that 1 dollar is equal to 124.50 yen (foreign
of foreign currencies are very similar to stock charts, a stock
investor that wants to day trade currencies can easily adapt to
foreign currency charts. If the trader feels like the dollar will
gain value versus the yen, he simply buys. After that, if he sees
the new candles of the chart going up (124.75, 125.32, 126.22, etc.),
he knows that he is in a profitable trade.
The four colored
lines (blue, pink, green, orange) shown on the chart above are called
"simple moving averages (SMA)." A simple moving average
is an arithmetic average of the price of a currency pair over a
certain number of time periods. The moving averages shown above
are the 10-period, 20-period, 50-period, and 200-period moving averages;
in other words, the average price of the currency pair over the
last 10, 20, 50, and 200 days respectively. Moving averages are
part of "technical
analysis:" the study of past prices to determine the probability
of what current prices are going to do next. Technical analysis
is the core of currency trading and is included in the training
we provide our customers. Click
here to read more about technical analysis in currency trading.
Have you noticed
the similarities between charting stock and currency prices yet?
If you understand how to read currency
quotes, you can begin to trade currencies using technical analysis.
Trading currencies has many advantages over trading stocks (click
here for the advantages of forex trading), including the fact
that you only have a few mayor currencies to trade versus thousands
of stocks. If you read the example after the first chart on this
page, you would have also realized that more money can be
made trading currencies because of the higher leverage involved (100
to 1). Please note that a lot more money can be lost as well if the price goes against the trader (increasing leverage increases risk).
To get access
to free real time currency charts, you can sign up for our online
trading simulator. This simulator not only will let you play with
charts of different currencies in real time, but it will also allow
you to practice your trading by executing buy and sell orders at
actual exchange rates. This is the best way for you to learn how
to day trade or swing trade currencies. The free
training that you can receive also
includes how to utilize fx charts in your trading.
access to free currency charts by signing up for a FREE 30-day trial
of our forex trading software...