Understanding Forex Charts

 

Video Transcription:

Hey traders, welcome to Video 2 of the Advanced Forex Strategies Course,
this is Cory Mitchell. In this video we are looking at understanding forex
charts. Brought to you by Investoo.com.

So, a bit of review from Video 1: Forex, The Simultaneous Buying of One
Currency and the Selling of Another. This is why we always have currencies
listed in pairs. We have the EUR/USD, USD/JPY, GBP/USD. Any currency has an
abbreviation.

So as you can see here, the EUR/USD that would be the Euro and U.S. Dollar
in their abbreviated form. U.S. Dollar is USD. NZD is New Zealand Dollar,
GBP, British Pound. CAD, Canadian Dollar. CHF is the Swiss Franc.

So, most pairs are priced up to 5 pips, so this would be an example of a
price you may see in the EUR/USD. A 1 pip movement would be from 3645 to
3646. This is the fractional pip, so down to 1/10. JPY pairs priced to 3
pips so this would be an example of a price you may see, 102.564.

And just to review again, what that means is that for this pair, 1.36451 is
how many US Dollars it costs to buy one Euro. This would be how many Yen it
cost, JPY, Japanese Yen, to buy one U.S. Dollar. So, you can always think
of the first currency in the pair as one and then the actual price is how
many of the second currency it takes to buy one of the first currency.

So we have a number of resources for free forex charts. Here are just a
few.
Freestockcharts.com is one I like. Finance.yahoo.com is another one I like.
NetDania also a good site. At Freestockcharts and NetDania you can set up a
few of your favorite charts, save them, so more sort of a charting
platform. Which is quite nice.

So one of the main things to know about, when you’re looking at a forex
chart, is that when the price on the chart is rising, it means that the
first currency in the pair is appreciating relative to the second. So if
the EUR/USD is rising, you pull out the chart and you see that the price is
moving up. That means the Euro is increasing in value relative to the USD.

Forex charts only show the bid price, this is different than other markets
which show the last price traded. So, if you look at a stock chart or a
commodity chart, typically the price that they show on the chart is the
last trade that went through. Whereas in the forex it’s a bit different, we
have a lot of different brokers all over the world.

So, that price, they’ll simply show the current bid price that they are
offering. And there are always two prices. There’s a bid price and an ask
price, which is what people are willing to buy and sell that currency at.
So the bid price is what people are currently willing to buy it at.

We’re going to look at the bid and the ask in future videos, when we get a
little bit more in to placing orders. And that bid ask, what we call the
bid ask spread, is going to play a pivotal role in that. So we’ll cover
that in a future video. But for now just know that the price on the chart
is the bid price, which is the price people are willing to buy that
currency at.

So, let’s take a look at an example here. We have a chart of the GBP/USD.
So we can see, since about August of 2013, we have this overall movement
higher. We can see it’s quite choppy. But it’s making progress higher,
which means the British Pound has been appreciating against the U.S.
Dollar. So a good British Pound has been rising in value.

And we can see that because we know that the British Pound, if we look at
the pair, it’s GBP/USD. If we think of the British Pound as one, back here
it was costing us, back at this point here, it was costing us about $1.50
U.S. for one British Pound. And, over the course of almost a year, it has
moved up to, it now costs $1.68 to buy a British Pound, or 1.68074.

So it has increased, it takes more U.S. Dollars to buy a British Pound now.
So the British Pound has increased in value. So we can see that happening
here.

Back here we can see an example of, as the price was moving down, that
means the British Pound was losing value. In other words, the U.S. Dollar
was gaining value. So always, you can think of the first currency in the
pair as the directional pair on the chart. If it’s going down, that means
the first currency in the pair is going up. Or sorry, if the price is going
down, that means the first currency in the pair is going down. Or, if the
price is going up, that means the first currency in the pair is going up.

So we can look at another pair. So here, UDS/JPY, we can see that it is
priced to three decimal places, 102.503. And we had a period here where the
U.S. Dollar moved up against the Japanese Yen, then it fell down a little
bit. And now we’re moving, what we call pretty much sideways. So, the price
is fairly static at the moment. But, if it moves up that means the U.S.
Dollar will be appreciating against the Yen. If it drops, that means the
U.S. Dollar is losing value. Or you can think of it the other way. The
Japanese Yen is gaining value. So that’s how we interpret our forex charts.

So you can see if you use Freestockcharts.com, you just type in different
currency pairs to see what they look like, the USD/CAD for example. You can
see I have some analysis lines on here. And this pair also priced to 5
pips. That’s, as we said, most are priced to 5 pips. Just the Japanese Yen
pairs are typically 2, 3.

So we see here the U.S. Dollar making overall progress higher against the
Canadian Dollar. But more recently it has lost a bit of ground. So the U.S.
Dollar has been depreciating a bit. As we move toward this side of the
chart, we can see it losing value. That means the U.S. Dollar going down.
Also could mean, does mean, that CAD is going up. So U.S. Dollar down, CAD
up.

So that’s it. Go through one of those charts either at Freestockcharts.com
or Finance.yahoo.com or NetDania. Look through some charts and then that
way you’ll be more familiar with then as we start to get in to some more
advanced concepts. We’re going to look at setting up demo accounts. And
setting up orders where we’re going to set stock levels and ultimately, how
we make a little bit of money trading forex. So until next time, happy
trading.

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