We hope that you have completely understood the basic concept of forex charts and how to derive information from them. In this post, we shall discuss the different elements of forex trading i.e. details of the types of charts, prices, and the timeframes that are available in those charts.
When you look at the chart as a representation of different timeframes and depending on your choosing to trade short-term or long-term, you choose the timeframe that suits your style. In the short-term case, there is a daily chart where each bar represents the movement of price in a day. When the day closes, a new bar will be printed on the chart.
On the horizontal axis of the day chart, the difference of the two points represents the day’s activity. Then there’s another chart where the timeframe is set to five minutes. In this chart, the bars appear much faster than the day chart. Similarly, the difference between the two points on the horizontal axis represents the activity of the timeframe with bars appearing every five minutes. The highest price, lowest price, opening, and closing would be based on the activity of 5 minutes.
For people looking to trade in the long-term, the day chart is useful because that will give them an overview of the day’s activity. On the other hand, for those who are looking to trade short-term to make quick profits, they can take the help of the 5-minute charts. There are other frequencies as well such as 15-minutes, 30-minutes, and one hour etc.
Watch the below video for further information on “Different Elements of Forex Trading”.
Understanding Pips
Pip is the abbreviation of point in percentage. It is a very small measure of change in a currency pair and can be measured in terms of the quote currency. In other words, it is a standardized unit and the smallest amount by which the currency quote changes. The increase or decrease in pips creates a profit or loss. Pips change when the market goes up and down. In USD, the pip is usually $0.0001 or 1/100th of 1%. The reason why pips are denoted in decimals is to save or protect the investors from huge losses.
Bid/Ask Prices
This is a very small yet important concept among the different elements of Forex trading. The Bid price is the price quoted by the broker at which you are entering into a sell position. It refers to the highest price a buyer is willing to pay for the currency. The Ask price is the price quoted by the broker at which are entering into the buy position. On the chart, the two horizontal lines between the axes are the bid and ask prices. This is where the concept of spread arises as well. It is the difference between the Bid and Ask price. Spread is the cost that you have to bear.
These are the different elements of Forex trading that a new Forex trader has to understand in order to know how the amount of profits or losses is measured. Check out more Free & Premium Trading Indicators and boost your trading strategies with them.
