How to Read Forex Charts: Candles, Timeframes and What Charts Hide

What does a forex chart show?

A forex chart is a picture of past prices. Price runs up the side. Time runs along the bottom. Before you read the shape, check 4 settings.

1. The pair. EUR/USD prices are US dollars per euro. USD/CAD prices are Canadian dollars per US dollar. The same rising line means different things. See how to read currency pairs.
2. The price type. The chart may show the bid (sell price), the ask (buy price) or the middle. A buy order fills at the ask, which can be above the line you see.
3. The time zone. Platforms start and end the day at different times.
4. The timeframe. Each candle or bar covers a set period, such as 1 hour or 1 day.

Because of these settings, two charts of the same pair can look slightly different. That does not mean either one is wrong.

How do I read a candlestick?

A candlestick (or candle) sums up one period with 4 prices: the open, the high, the low and the close. Traders call these OHLC.

The thick part is the body. It runs from the open to the close: 20 pips here. The thin line above or below the body is a wick. The wicks reach up to the high and down to the low. The whole candle covers 60 pips.

This candle closed higher than it opened, so it is a rising candle. Rising candles are often green or white, and falling ones red or black. But colours are just a setting, so read the numbers.

Line, bar or candlestick chart: which should I use?

There are 3 common chart types. CME Group explains all three.

• A line chart usually joins the closing prices. It is clean and shows the big picture, but hides the swings inside each period.
• A bar chart shows the open, high, low and close for each period, drawn as a line with small ticks.
• A candlestick chart shows the same 4 prices, with a body and wicks.

Candles are popular because the body makes the open and close easy to see. But the information is the same as in a bar chart. More detail on the screen does not make a chart better at predicting the next move.

A small body means the open and close were close together. A long wick means the price travelled far and then came back before the close. Calling that "indecision" or "rejection" is an opinion about what traders felt. The chart only shows the prices.

Why do charts look different on different timeframes?

A 5-minute chart and a daily chart of the same pair can look very different. Each candle groups the same prices into a different period. Neither chart is false. The 5-minute chart shows more detail, but it does not predict the daily close.

Many traders look at a daily chart for the big picture, then a shorter one for detail. A daily downtrend can contain an hourly rise, so always say which timeframe you mean.

Wait for a candle to finish before you read it. Until the period ends, its high, low and close can still change. A pattern that looks complete halfway through the hour can be gone by the end.

This matters when you test a strategy on past prices. You cannot use a finished daily candle to justify a trade made earlier that same morning. The backtesting lesson explains how to handle this.

How do I spot a trend, support and resistance?

An uptrend is a series of higher highs and higher lows. A downtrend is a series of lower highs and lower lows. A range is when price moves back and forth between two areas.

Support is a price area where falls have stopped before, like a floor. Resistance is an area where rises have stopped before, like a ceiling. Think of them as zones, not exact lines. Price often pokes through a little before it turns, and sometimes it goes straight through.

Draw your zones using only the prices you could see at the time. A line that only looks obvious after the price turned is not a signal you could have used. Write the level down first, then watch what happens. Keep a note of the times price broke straight through.

When a ceiling breaks, traders often watch it as a possible new floor. Sometimes that happens, sometimes it does not.

Do indicators like RSI and moving averages predict prices?

Indicators are maths done on past prices. They can sum up what happened, but they do not see the future.

• A moving average is the average price over a set number of candles. It smooths out small moves.
• The RSI (relative strength index) compares recent rises with recent falls on a scale from 0 to 100.
• Bollinger Bands show where price sits compared with an average and with how much it has been swinging.

An RSI above 70 is often called "overbought", and below 30 "oversold". That does not mean a turn is due. Extreme readings can last a long time in a strong trend.

Many indicators use the same prices, so adding more often repeats the same information. Do not keep adding indicators until one finally agrees with the trade you already wanted. Also, volume on a retail forex chart usually counts activity in one provider's feed, not the whole world's trading.

How can I practise reading forex charts?

Try this check with the made-up candle above. You were long with a target at 1.1030 and a stop at 1.0990. Could both have been touched during that hour? Yes, both sit inside the candle's range. Can the candle tell you which happened first? No. You would need more detailed data, or a careful rule such as "count it as a loss".

In your next practice session, follow 3 steps:

1. Write the pair, the price type, the time zone and the timeframe.
2. Describe one finished candle in numbers: open, high, low, close.
3. Only then decide whether you see a trend or a level.

Next lesson: forex market analysis, which compares reading charts with following the news. To turn what you see into a rule you can test, read technical analysis basics. And remember that a quiet-looking chart can still hide a wide spread. The spread lesson shows how to compare the chart with real buy and sell prices. For free charting apps with paper trading, see our forex apps comparison.