How to Read Forex Charts

A chart is a compression, and the compression is a choice

Price is a continuous stream of quotes. A chart throws almost all of it away and keeps a summary, and every chart type is a different decision about what to discard. That is not a flaw — an unsummarised stream is unreadable — but it does mean a chart is an argument about what matters, not a photograph of the market. Knowing which argument you are looking at is most of what reading a chart involves.

What one candle actually encodes

A candlestick compresses an interval into four numbers: the open, the high, the low and the close. The body spans open to close, the wicks reach to the extremes, and the colour says which of open and close came out higher. Everything else about that interval — the order in which the moves happened, how long price spent at each level, how many trades it took — is gone. This is why single candles carry so little on their own. A Doji Candlestick, where open and close sit almost together, says the interval ended where it started; it does not say the interval was quiet. A Bullish/Bearish Engulfing Pattern needs two candles, and the second reversing and exceeding the first is the whole of the signal.

The timeframe is part of the reading

The same market produces contradictory-looking charts at different intervals, and neither is wrong. A sequence of lower highs on a five-minute chart can be a single wick on the four-hour. Before drawing any conclusion it is worth knowing which interval it came from and whether it survives at the interval above, because a pattern that disappears when the timeframe changes was a feature of the compression rather than of the market.

Levels before patterns

Support & Resistance is the most basic chart reading available and the one most worth doing first: prices where the market has repeatedly turned or stalled. Levels are also the context that makes named patterns mean anything. Triangle Patterns and a Wedge Pattern both describe a range compressing toward a point, and both are ordinary features of a market waiting for information. What makes either interesting is where it sits relative to a level that already mattered.

Charts that discard time on purpose

Some chart types drop the clock entirely. Renko Charts print a new brick only when price moves a fixed amount, so a quiet hour and a violent one can occupy the same width. Point and Figure Charts do something similar with columns, filtering out movement below a threshold. Heikin Ashi keeps the time axis but averages each candle into its neighbours, smoothing the sequence at the cost of showing true opens and closes. Each makes a trend easier to see by removing the noise around it, and each hides exactly the price movement a protective order will actually be placed into.

What a chart cannot show you

Every chart shows one price per moment, and no account trades at one price. The bid and the ask are separated by a spread that widens when liquidity thins, and the chart typically draws only one of them. Nothing on it displays commission, the overnight financing on a position held past the rollover, or the difference between the price requested and the price actually filled. A setup that looks clean at the candle's close can be materially worse once the cost of entering and leaving it is included — which is the part of chart reading that no chart teaches.