How to Read Forex Charts: Basic Technical Analysis for XM Traders

How to read forex charts helps traders spot market trends, identify entry and exit points, and make better trading decisions.

For traders on XM, mastering how to read forex charts is a fundamental skill that can significantly improve trading results. Forex charts visually represent price movements over time, helping you spot trends, patterns, and potential entry or exit points. In this article, we’ll introduce the basics of technical analysis and guide you through reading forex charts effectively, so you can make smarter trading decisions on the XM platform.

What Is a Forex Chart?

A Forex chart is a graphical representation of the price movement of a currency pair over a specific period. It shows how much one currency is worth in terms of another.

Core components of a forex chart:

• Price (Y-axis): Vertical scale showing the value of the currency pair
• Time (X-axis): Horizontal scale showing the timeframe (e.g., 1 minute, 1 hour, 1 day)
• Chart type: Line, bar, or candlestick
• Bid/ask spread: The difference between the buy and sell price

Types of Forex Charts

Line Chart

• Connects closing prices over a specific period
• Simple, good for spotting overall trends

Bar Chart

• Displays open, high, low, and close (OHLC) prices
• More detailed than line charts

Candlestick Chart (most commonly used)

• Visualizes price action with colored “candles”
• Each candlestick represents one period (e.g., 1 hour)

On XM, candlestick charts are the default and can be customized in MT4/MT5. During high-volatility periods, traders analyzing charts should also remain aware of XM slippage, as price gaps between candles can lead to execution at less favorable levels.

How to Read Candlestick Charts (XM Chart Reading)

Each candlestick has:

• Body: Represents the open and close price
• Wicks (shadows): Show the high and low during the time period
• Color: Indicates market direction (e.g., green for bullish, red for bearish)

Example:

A green candle on EUR/USD H1 (1-hour chart) means the Euro increased in value relative to the USD over that hour.

How to Read Forex Charts Step-by-Step

Step 1: Choose the currency pair

Start with major pairs like EUR/USD, GBP/USD, or USD/JPY. Understanding the associated forex quote helps you interpret the bid/ask prices and execute trades more accurately.

Step 2: Select the timeframe

Timeframes range from 1 minute to 1 month.

• M1–M15: For scalping
• H1–H4: For intraday
• D1 and above: For swing and position trading

Step 3: Identify the trend

Use the chart to determine if the market is:

• Uptrend (higher highs/lows)
• Downtrend (lower highs/lows)
• Range-bound (sideways)

Step 4: Plot support and resistance

These are price levels where price has historically:

• Bounced up (support)
• Reversed down (resistance)

Step 5: Use candlestick patterns

Look for reversal or continuation patterns:

• Reversal: Doji, Hammer, Engulfing
• Continuation: Flags, Pennants

You can easily find these patterns on XM MT4/MT5 charts.

Basic Candlestick Patterns to Know

Pattern	Meaning
Doji	Indecision in market
Hammer	Potential bullish reversal
Shooting Star	Potential bearish reversal
Bullish Engulfing	Strong buying pressure
Bearish Engulfing	Strong selling pressure

On XM, you can zoom in/out and adjust timeframes to detect these patterns more easily.

Forex Indicators for Beginners

Indicators help you interpret chart data more effectively.

Moving Average (MA)

• Shows average price over time
• Helps spot trend direction
• Types: SMA (Simple), EMA (Exponential)

Relative Strength Index (RSI)

• Measures momentum
• Values above 70 = overbought
• Below 30 = oversold

MACD (Moving Average Convergence Divergence)

• Identifies trend changes
• Good for spotting momentum shifts

On XM’s MT4/MT5, these indicators are built-in:

• Go to Insert → Indicators → Trend or Oscillators

XM Chart Reading: Platform Features

XM offers MetaTrader 4 and MetaTrader 5, with full charting tools:

• 9 timeframes
• 30+ technical indicators
• One-click trading from the chart
• Candlestick and bar/line chart options

Pro tip: Save custom templates for preferred colors, indicators, and chart layout.

Common Mistakes When Reading Forex Charts

• Misinterpreting candlesticks: Wicks can be misleading if not read in context
• Ignoring timeframes: A trend on the 1H chart may differ from D1
• Using too many indicators: Leads to “analysis paralysis”
• Trading on emotion: Reacting to single candles or fake breakouts

Forex Charts vs. Stock & Crypto Charts

Feature	Forex	Stocks	Crypto
Trading hours	24/5	Exchange hours	24/7
Chart types	Similar	Similar	Similar
Volatility	Moderate	Varies	High
Volume transparency	Limited	Visible	Varies by exchange

While chart-reading principles apply to all markets, forex traders rely more on support/resistance, news, and technical indicators due to centralized liquidity.

Learn to Read Forex Charts, Trade Smarter

Reading forex charts is a core skill as you learn trading. Start simple: understand candlesticks, find trends, use support/resistance, and add basic indicators. Platforms like XM give you professional-grade charting tools even as a beginner.

Reading Forex charts is an essential skill that every trader on XM should master. From understanding candlestick patterns and timeframes to identifying trends, support, and resistance levels—these charting basics form the foundation of technical analysis. With XM’s advanced tools on MT4 and MT5, you have everything you need to analyze the market effectively and make informed trading decisions. By starting with the fundamentals and avoiding common mistakes, you’ll be better equipped to read the market with confidence and improve your overall trading performance. To learn more about XM’s trading tools, services, and values, visit the About Us section on the official website.