How to Read Currency Charts

Currency charts give traders easy-to-read images of exchange rate activity.
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Currency exchange rates fluctuate constantly. Traders on the Forex market, as the currency market is often called, try to make money by anticipating currency exchange rates and trends. A trader may follow news about political and economic trends as well as changes in interest rates, employment and inflation. Traders also rely on currency charts that display current exchange rate information and trends. A trader can use online software and real-time data to create her own charts.

Step 1

Read the exchange rate quoted on the currency chart. All currencies trade in pairs. For example, a quote might read: EUR/USD 1.4225. EUR stands for euro and is termed the base currency because it is listed first. USD is the United States dollar and is called the counter currency. The base currency is always one unit. Here it's one euro. The quote amount tells you how many dollars it takes to buy one euro. Thus, you can say this exchange rate equals $1.4225 per euro.

Step 2

Evaluate changes in currency exchange rates. Suppose the rate in Step 1 goes up to EUR/USD 1.4400. This means a single euro will buy more dollars, so the euro is said to be getting stronger against the dollar. If the exchange rate went down to $1.4000 instead, you would need fewer dollars to buy a euro, so you'd say the dollar is getting stronger or that the euro is weaker against the dollar.

Step 3

Look at the chart and you see a series of vertical bars of varying lengths. These are called candlesticks. Each bar has a line extending from the top, and another from the bottom, called wicks. Blue candlesticks indicate the exchange rate went up for the time period covered. A red candle shows the exchange rate went down. For instance, if the rate falls from EUR/USD 1.4225 to EUR/USD 1.4000, the candlestick will be red. The length of the candlestick shows how much the exchange rate changed. If the change was upward, the bottom of the candlestick indicates the opening exchange rate and the top shows the closing rate. When a red candlestick shows a drop in the exchange rate, the opening rate is indicated by the top of the candle and the closing rate by the bottom. The top wick indicates the high and the bottom wick marks the low.

Step 4

Examine the trend line. A trend line is a line superimposed on the candlestick graph that shows the overall direction of currency rate changes. Starting from the left, if the trend line is slanted upward toward the upper right of the chart, the trend is increasing. If the trend line is headed toward the lower right, the rate trend is down.

Step 5

Check for other information on the chart. One item that's usually at the top is the time interval. Some charts display one candlestick for each day's trading. However, traders can generate charts with online software and may set different time intervals. For instance, a trader engaged in a day's trading might set the chart to show a candlestick every five minutes. Traders can also take advantage of hundreds of Forex market indicators available online and may include one or more on a chart.