Forex Trading Simple Strategies: All You Need to Know to Start Trading Forex and Learn Successful Strategies With a Quick Daily Routine for Beginners to Make Money for a Living by Bear Matthew

Author:Bear, Matthew [Bear, Matthew]
Language: eng
Format: epub
Published: 2019-08-15T16:00:00+00:00

Chapter 5: Understanding Charts

Before we begin an in-depth discussion of the strategies used by Forex traders, you need to have an understanding of charts. The charts used in Forex are similar in a superficial sense to the charts that you may have seen on the stock markets. Typically, Forex traders are going to be using candlestick charts. In fact, this is almost a universal practice. So the first thing that a beginning Forex trader needs to learn, beyond the basic fundamentals that we covered in the last two chapters, is how to read and understand Forex charts. That is the topic that we are going to cover in this chapter.

Remember What the Chart Is Charting

This sounds like a crazy statement, but you have to remember that the currency pair A/B means that if the value shown in the chart increases, this favors the currency A. What this means is that the value of currency A is increasing relative to the value of currency B. You can also look at it in the sense that if the graph on the chart is increasing, the value of currency B is decreasing.

So if you buy the currency pair A/B, and the increasing graph or upward trend is a trend that is working in your favor.

Now consider a downward trend. When the trend is going downward, you are losing money if you had bought the currency pair A/B, because this means that the value of currency A is decreasing relative to currency B.

Where some new traders get confused is when you sell the currency pair A/B. In this case, the meanings on the chart are reversed, because if you sell the currency pair A/B, this means that you are betting on the currency B. So when the chart is un an upward trend, if you had sold the currency pair you are losing money. This is easy to understand. For the sake of simplicity, let’s say that you had sold the currency pair for $1. To exit the position, you have to buy back the currency pair. But if it increases in price to $2, then you would lose $1 buying it back. The values given here are for illustration only, but it nicely illustrates the general concept.

Now consider the opposite situation. That is, we are still talking about selling the currency pair A/B, but this time we see a downward trend on the chart. This means that the price of the currency pair is decreasing. We can, of course, frame this result in many ways. One of the ways that we can do so is to say that the currency B is increasing in value, with respect to currency A. Now let’s say that once again we sold the currency pair A/B for $1. Now we imagine that is has decreased in price to $0.50. Then we can buy it back, and we make a $0.50 profit.

Of course, these prices are not realistic for a Forex trade, but it clearly shows the concept of how this actually works.

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