Trading on the foreign exchange market can be very exciting and profitable. In order to be successful you need to understand different market movements. One method which will help you with this is forex charts. However, not all traders know how to utilise forex charts properly leading to many common mistakes. To avoid these you must have an awareness of what they are.
Forex charts and time zones
The foreign exchange market operates on 24 hours trading times for 5 days per week. In order to complete this task, the market has separate time zoned ‘sessions’. In these sessions all online trading is completed via a particular trading hub located in a city within the relevant time zone. For example, the London trading session operates on a different time zone to the New York trading session.
This fact must be noted as all forex charts are created for specific time zones. When using one you must identify which time zone it is made for. If you are working with a historical chart you must ensure it is in your local time zone. However, real time charts do not have this difficulty as they report in real time across time zones. This means that the real time data will be relevant irrespective of the forex chart time zone. By neglecting to identify what time zone your chart works in you will be working off incorrect information which leads to trading losses.
Forex charts as a tool
To improve a trading system, the forex trader may add different trading tools as a means of support to their strategy. Sometimes using too many tools can lead to an information overload and too much data to sort through. If this happens it is recommended that you remove any tools providing irrelevant or inaccurate data. However, always keep forex charts as they will help you as long as they are up to date. If the chart does not show recent information then it should be eliminated from the system.
Forex charts and analysis
Forex charts are used to analyse the market movements and help predict future trends. They allow for a graphic representation of this data making it easier to read. The analysis of these charts is important as you need to react quickly using their information. If you are unable to react in a timely manner you will lose your advantage and potentially your trading capital.
Once you are able to analyse a chart you can use it as an indicator as well as a predictor of future trends. It is recommended you master one chart before moving onto another. This allows for greater knowledge of your tools and more effective trading.
Forex charts time frames
Another common mistake that traders make is not looking at appropriate time frames on forex charts. The majority of new traders will look at the current trading time frame, but this limits analysis. It is recommended that you look use a forex chart time frame that matches your trading type. Once you have the correct time frame you will better understand both the trend of your currency pair and your position in the trade.