If you can’t read charts, will not be able to make any use of data that help you configure and form your strategy and your future plans, which is why it is very important to understand how to read and interpret charts.
There are three different categories of charts:
Linear charts are easier to understand but they offer the least amount of data, it is simply just a line on the chart that shows the price versus time.
As for Bar charts, they don’t only display price, but also show the entry level compared to a period, and exit level at the end of that period, and the highest and the lowest point in that period, each vertical bar represents one time period, and the period is determined by the chart, as they may be one minute, or 5 minutes, or 15 minutes, or 30 minutes, or hours, or 4 hours, or a day or a week, or a month.
Finally, candlesticks charts are like bar charts, but with the addition that each bar is either hollow or filled, and this is done to make it easier for traders to determine whether the bar represents an upward or downward trend from the entry level, as hollow means that price has risen, while the filled bar means that the price has dropped, and there is a line above and below each bar, that line represents the highest and lowest level during that time period.
Now that you understood what are linear, bar and candlesticks charts, you should know how to interpret them:
First, you must understand that each bar or candlestick represents one period of time, and that period may be one hour, for example, where the horizontal axis represents time, while the vertical axis represents the price of the currency pair.
Each bar represents the top level and the lowest level in a period of one hour, and it also shows the entry level and exit level at the end of that time, so bars and candlesticks can vary in size, , as bigger bars or candlesticks means that the difference between the highest price and the lowest price is bigger, while the shorter bars or candlesticks means the market didn’t move significantly.
When you look at bar or candlesticks charts, the shadows term means the line that comes out of the top and bottom of the bar, which refers to the highest or the lowest level during a certain period of time, but that the exit level was not at that level.
Your ability to see shadows means that you can conclude that the market in that period of time had reached a high level but fell thereafter and closed at a lower level, and this may mean that the currency pair you are studying arrived to a certain point where there is resistance of other currency pairs in the market against achieving a higher price, on the other hand, there could be a support to push the price in another direction if you see several shadows taking one direction, as when you see several shadows going out in one direction, that may mean that there is support to push the currency pair in that direction.
If you find in the chart several filled Holders of shades going down, it means that a large number of traders in the market are seeking to lower price.
And even though it appears to support the downward direction, you should be careful before making a decision must be taught the shadows are moving in the opposite direction as well, and the extent of its power in the first against the power of the shadows that supports a lower price.
When you look at the chart and find that the price continues to touch a high level but it seems to be unable to go beyond it, then it means that there is a certain level that most traders and investors feel they shouldn’t push the pair to crossed in the market, this is known as the resistance level.
MARKET TRENDS LINES
Market trends lines are lines that are drawn on the charts to determine the overall trend in the market, as you can draw your own lines from one point to another point to determine the general direction taken by the market.
The first horizontal point is the period where the trend begins, and it continues to the second horizontal point which represents the end of the trend, while the vertical levels represent the difference in price between the beginning of the line and the end of it.
Trend lines are a very useful way to determine the status of the market, and you can also get support lines or resistance lines by noticing constant repetition of support or resistance between two periods in the chart.
Channel lines are lines that are drawn to determine the general direction, taking into account all the candlesticks which show support or resistance levels.
Drawing channel lines helps to locate the trading range, and this is particularly useful if you are using the ranging strategy as it improves the chances of finding your exit points.