How to Read Forex Chart Patterns in 2023
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- Regulated by FCA, ASIC
- No withdrawal fee for US clients
- 0% commission on stocks
- Social and copy trading
- Not available in every US State
- More expensive than most of its competitors
- No MetaTrader platforms
The below does not apply to US users
Founded in 2007, eToro is considered a very low-risk broker as it is highly regulated by the Financial Conduct Authority (FCA) in the UK and many other regulatory bodies elsewhere.
Opening an account is free and you can access a $100,000 demo account to test the system.
It offers 47 currency pairs for trading. Spreads for forex trading have recently been significantly reduced and range from a very competitive 1 to 3 pips for major currency pairs.
Typical spreads for EURUSD and USDJPY trades, for example, are just 1 pip.
You can see the full list of spreads on the eToro website.
You’ll need to deposit a minimum of $200 for Copy Trading, eToro's standout feature which allows you to follow other traders and copy their trades.
This forex broker is great for beginners due to its user-friendly interface and app and 24-hour customer support. It allows you to trade currencies, stocks and cryptocurrencies in one portfolio and the Copy Trading system is a great way to learn.
The company also offers trading courses and features a Learning Lab which houses a variety of tools to support clients with their trading experience.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
- No buy/sell commissions and tight spreads
- Leverage of up to 1:30
- FREE unlimited Demo
- 2,800+ trading instruments
- Real-time quotes and advanced analytical tools
- Fast and reliable order execution
- No API integrations
- No social copy trading
Plus500 is a CFD provider and offers only CFDs.
Another user-friendly entry on our list of the best forex and CFD brokers in the UK is Plus500, providing an easy-to-use and accessible service.
You’ll find over 60 CFD currency pairs with competitive spreads, no commission and available leverage of up to 1:30.
Although MetaTrader and cTrader are not available, Plus500’s own platform is very user-friendly. It comes with a range of intuitive risk management features and is available on web and mobile.
Plus500 requires a minimum deposit of £100 if using a credit or debit card, and £500 if using bank transfer.
Plus500 UK Ltd authorized & regulated by the FCA (#509909).
81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
- Highly regulated
- Advanced trading tools
- Account protection
- Low trading fees
- No US clients
- Inactivity fee
- Minimum deposit of $250
Best for: Advanced trading tools
Admiral Markets, rebranding to 'Admirals', describes itself as a ‘full-spectrum financial hub’.
In practice, Admirals is a broker that offers several forex and CFD trading instruments in most currencies.
Founded in 2001, Admiral Markets is regulated by JSC, FCA, EFSA and CySEC, and offers traders access to both MetaTrader 4 and 5, with the opportunity to have several active accounts with different base currencies to take advantage of price instability.
There are several account types available, depending on the platform that you want to use.
On MT4, you can choose a standard account known as Trade.MT4. The minimum deposit for this account is 100 USD/EUR/GBP or equivalent, and you can trade 37 currency pairs as well as metal, energy, future, stock and bond CFDs.
In this account, the trading fees come from the spread, apart from with single share or ETF CFDs, which have a standard commission of 0.02 USD.
The Zero.MT4 account offers tighter spreads, with more currency pairs (45) but fewer CFD options.
The commission on forex and metal CFDs is 1.8 to 3 USD per lot, cash indices are 0.5 to 3 USD per lot, and energy CFDs are 1 USD per lot.
If you prefer the upgraded MT5, you can also have an Invest.MT5 account, alongside the Trade.MT5 and Zero.MT5. MetaTrader 5 accounts have access to more trading instruments in both Trade and Zero, but the Invest.MT5 is designed purely for buying stocks and ETFs, with more than 4,350 stocks and 200 ETFs available and a minimum deposit of 1 EUR/USD/GBP.
Deposits are free using bank transfer, card, PayPal or Klarna, but there is a 0.9% fee (or $1 minimum) for deposits made using e-wallets like Neteller or Skrill. You can have one free withdrawal a month as a bank transfer, but two if you use PayPal or e-wallets.
If you are not a UK resident, the conditions might change depending on the regulation. Please, check the Admirals website for details.
Please, be aware that if you want to see UK conditions but you don't have a UK IP address, then you must select Admirals Markets UK at the bottom of the home page.
- Highly regulated
- MetaTrader 4 (MT4)
- Over 10,000 instruments
- Available in the UK and US
- 24/7 customer support
- High fees
- No deposit compensation scheme for US accounts
- No copy trading
- Inactivity fees
IG is a great share trading platform for beginners thanks to its user-friendly interface and extensive educational resources.
Pros of IG include a wide range of trading instruments and markets, as well as the ability to access multiple account types and trading platforms. The platform also offers a demo account for beginners to practise trading strategies before investing real money.
However, IG isn’t the cheapest share trading platform, with relatively high trading fees and a minimum deposit requirement of £250 when paying by credit/debit card or PayPal.
In terms of additional fees, IG charges a commission fee for share trading, starting from £8 per trade. There’s also a custody fee of 0.25% per year for holdings of £250 or more.
Overall, IG is a solid choice for beginners looking for a user-friendly platform with extensive educational resources, but investors should be aware of its fees and minimum deposit requirements.
Forex (an abbreviation of foreign exchange) relates to the process of purchasing and selling different currencies within the foreign exchange market. Forex is sometimes referred to as ‘the currency market’ or ‘FX’.
In the international forex market, investors, shareholders and retailers influence the relative value for converting one currency into another by acquiring and trading currency pairs. Successful forex traders benefit from the changes in value between different international currencies by choosing two currencies and predicting which will go up in value compared with the other.
Forex charts can be used to provide an illustration of a currency’s behaviour or performance over time. Traders often use forex charts to help them to gain a better understanding of past performance; this information is then used to help them make informed trading decisions in the future.
Since forex charts can signal uptrends and downtrends in currency performance, they can be a helpful resource when it comes to planning your next trading move.
If you want to get started with forex trading, you will soon come to realise the importance of tracking currency movements. One of the most effective ways to achieve this is by using forex charting software.
There are many different options available, so it's important to look for one that will suit your skill level and trading style.
One of the most popular forex trading software solutions is TradingView. This software offers a free basic solution which can be used to trade any market. It is cloud-based, so you can access it from any device.
TradingView is designed to meet the needs of new and experienced traders alike. There are plenty of customisation options to ensure it meets your needs and you can set up alerts to prompt you when your favourite currency pairs begin to move.
If you would prefer to use an ad-free service, there are three different paid-for options which offer a range of additional benefits.
How to Read Forex Charts
Forex charts can help traders to recognise patterns, gain an understanding of how many traders are trading in a market and identify areas of support and resistance.
Choosing a timeframe is one of the most important aspects of reading forex charts. To toggle between timeframes, zoom in and out of the chart. Time is represented on the ‘x’ axis and exchange rate pricing on the ‘y’ axis. To view historical data, move to the left of the chart.
In simple terms, a downtrend can be identified by looking for a line that moves downwards from left to right, whereas an uptrend is depicted by a line moving upwards from left to right.
The three main charts used in forex trading are:
These are the most straightforward type of forex chart to read so they are a good starting point for new traders. However, they don’t give as much information as some of the other chart types.
A line chart is simply a line between one closing price to the next. It can give traders an overall feel for how a currency pair has performed during a specific timeframe.
A bar forex chart gives traders a little more information than a line chart. They show closing prices but, at the same time, they also give low and high indications of opening prices.
Within each bar, the lowest part of the vertical line represents the lowest traded price for the specified currency pair during a certain timeframe. Similarly, the highest part of the line shows the highest traded price during the same timeframe.
Each of the vertical lines meets with two shorter horizontal lines. The one on the left-hand side shows the opening price for the chosen currency pair at a specific time; the one on the right-hand side shows the closing price for the currency pair at that time.
The candlestick chart has Japanese origins and is probably the most useful of the three main chart types.
When reading a candlestick chart, it is important to understand the basic candle structure. Each candlestick represents a timeframe – this could be anything from one minute to an entire week.
Irrespective of the timeframe, a candlestick symbolises the following values:
- Opening price at the start of the chosen timeframe
- Closing price at the end of the chosen timeframe
- Peak price within the chosen timeframe
- Lowest price within the chosen timeframe
According to the opening and closing price, the candlestick can be used to decide whether a session finished ‘bearish’ or ‘bullish’:
- Bullish – The closing price was greater than the opening price
- Bearish – The closing price was less than the opening price
When reading forex charts, it is important to be aware of some of the most popular forex chart patterns and trends you might observe and what they might indicate in terms of future prices. These signals include reversal and continuation trends:
During a reversal trend formation, you might spot one or more of the following patterns:
Look out for an ‘M’ shape with two ‘tops’ or peaks. Typically forming during an uptrend, a double top is a very bearish pattern which forms when the price reaches a particular level more than once but doesn’t go above it.
After this level has been reached, the price tends to dip slightly before returning back up to the top level again. If it bounces back down again, this is known as a double top. After reaching the second top, it is likely that the price will dip again.
Look out for a ‘W’ shape with two low points. This bullish forex chart pattern is usually seen following a downtrend – the price will drop down to a new low, increase slightly and then dip back down to the lowest point. After reaching the second low point, it is likely that the price will increase again.
In this relatively unusual bearish pattern, you’ll see an initial peak (shoulder), a slight dip followed by an even higher peak (head), another slight dip and, finally, one further peak (shoulder). The lowest points of the two troughs can be connected to form a ‘neckline’. After the second peak, it is likely that the price will fall.
In contrast to the standard head and shoulders pattern, the inverse version is bullish. Look out for an initial dip, a slight increase followed by an even lower dip, another slight increase and finally a further dip that is not as low as the middle one. After the second dip, it is likely that the price will rise again.
Sometimes called the ascending wedge, this bearish pattern often forms during an uptrend and can signify either a reversal or continuation trend. Look out for the price consolidating between rising sloping support and resistance lines. If this pattern shows just after an uptrend it usually indicates a reversal pattern, so you can expect the price to start dropping again.
During a continuation trend formation, you might spot one of the following patterns:
If you spot this forex chart pattern after a downtrend, it’s likely that the price will continue to drop.
Just like the rising wedge, the falling wedge can indicate either a reversal or continuation trend. If it forms at the end of a downtrend, this bullish pattern indicates that an uptrend can be predicted. If it forms during an uptrend, the price can be expected to continue increasing.
Rectangle patterns appear when the support and resistance levels of the price are parallel. You’ll notice the price ‘testing’ both the support and resistance levels a few times before finally breaking out. A bearish rectangle appears when the price increases for a period during a downtrend. If you spot this pattern, you can expect that the price will continue to fall.
A bullish rectangle appears following an uptrend. If you spot this pattern, you can expect the price to continue going up.
Following a significant upward or downward move in price, there is usually a short pause before further movement in the same direction. As a result, the price tends to consolidate. In a forex chart, this can be identified by a small symmetrical triangle shape called a pennant.
Bearish pennants form during vertical, steep downturns. Following a sudden drop in price, some traders will choose to close their positions whereas others opt to join the trend, meaning that the price consolidates for a short time.
Once enough sellers have moved into the trade, the price drops below the bottom point of the pennant and it can be expected to continue moving down.
Bullish pennant patterns are the opposite of bearish ones, so they appear after a sharp increase in price. This uptrend can be expected to continue after a brief period of consolidation.
When a triangle pattern appears, it can be more difficult to predict what will happen next. There are three different types of triangle chart formation to look out for:
Symmetrical triangle: In this pattern, the incline of the price’s highs and the decline of the price’s lows come together to create a pattern resembling a triangle. It’s impossible to predict which direction the market will eventually break out in.
Ascending triangle: In this pattern, there is a clear point of resistance, but the lows can be observed as increasing.
Descending triangle: This pattern is the opposite of an ascending triangle – there is a support level line which the price doesn’t seem to be able to break and a series of lower highs creates the upper line of the triangle.
Chart patterns are a useful tool when it comes to making predictions about the markets and highlighting areas which are potentially beneficial for trading.
While chart patterns can be useful in providing an insight as to what the markets are doing, they shouldn’t be used by themselves. Ideally, they should be considered alongside other data to help build strategies and make trading decisions.
Chart patterns and price action patterns are more useful in stocks and futures markets than in Forex markets. This doesn’t mean that they aren’t helpful for making Forex decisions, however, they should just be considered alongside other information.
Candlestick charts are particularly useful as they help to highlight changes within specific periods. This is useful for forex trades which often take place over a period of time.
Many brokers will offer educational tools as part of their packages which will enable you to learn about things like reading charts and patterns.
Alternatively, there are several courses and training programs to consider.
Support and resistance help brokers to see potential highs and lows within the market as well as offer the ability to see where they are likely to sit within these trends.
This is a pattern that often happens at the top of a market and can often signal a reversal. It is a relatively rare pattern to see in charts and is similar to the more common head and shoulders pattern.
For any new trader, forex charts are likely to seem overwhelming when you first start looking at them. One of the best things you can do is set aside some time to gain a good understanding of how the price and time axis can be used to help gather historical data and learn how this can be used to predict what might happen next.
Many trading platforms offer the option to open a demo account which will allow you to trade risk-free before putting any of your money at risk. This is a good way to boost your overall trading knowledge and give yourself time to become familiar with forex charts, interpret patterns and act upon any trends that you identify.
WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.