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Charts and Quotes (learn forex online)

Why Charts and Quotes?

Charts and quotes are the language of forex prices. Expertise in reading charts and understanding quotes is a valuable--even essential--weapon in the successful forex trader's arsenal. Effectively reading charts and quotes requires being familiar with numbers and decimal places and basic math principles like addition and subtraction, multiplication and division. To being exploration of charts and quotes, let's review some basic information covered in previous sections.

Currency Pairs, Base currency & Quote currency

In forex trading, a trader buys one currency at the same time he sells another, or vice versa. The two currencies are commonly called a currency pair. Both currencies are listed together so the trader can know exactly what value is placed on the currency bought and the currency sold. For example as USD/CAD quote might be displayed as 1.0438/41. In this example the first currency, the United States dollar, is called the base currency and the second, the Canadian Dollar is the quote currency.

For many currency pairs, the U.S. Dollar is used as the base currency, reflecting in this case the value of the CAD (the quote currency) in relation to 1 USD. This example indicates that 1 USD can buy 1.0438 Canadian Dollars, or that it takes $1.0438 Canadian Dollars to purchase 1 US Dollar.

Not all currency pairs use the USD as the base currency. For example, when the Euro was introduced in 1999, the government of the European Union decreed that all foreign exchange quotes using the Euro would place the value of the Euro first. Therefore, quotes involving the Euro would read as follows: EUR/USD 1.4545, meaning that one Euro will buy 1.4545 USD. Two other notable currencies are listed as the base currency in all quotes, even against the USD; the Great Britain Pound (GBP), and the Australian Dollar (AUD). In some cases, neither the USD nor the EUR are found in the base currency or quote currency. Such currency pairs are called cross rates. An example of a cross rate is CAD/JPY (Canadian Dollar/Japanese Yen). (Note that definitions of the term cross rate vary. Some rely upon the context of the county in which the term is used - seemingly an arbitrary definition in a global marketplace.)

Bid/Offer and Ask, Spreads

In any forex transaction, one currency is sold at the same time another is bought. Just as in an auction, the foreign exchange market uses the terms Bid and Ask to describe the value of the currency. The difference between the Bid and the Ask, also known as the spread, is used to calculate the amount of profit or loss on the trade.

Forex rates are often stated with both Bid and Ask included together, separated by a slash:
For example the term USD/CAD 1.0438/41 indicates that the bid price for USD/CAD is 1.0438, the ask price is 1.0441, and the spread is therefore 0.0003, or of 3 pips.
Remember: the Ask is the price at which a Trader might purchase the currency pair, while the Bid is the price at which a Trade might sell the same pair. The Bid is almost always lower than the Ask price, except in unusual conditions seldom (if ever) experienced by the speculator

As an example of how the quote prices relate to trading, consider the following:

Assume that the current price of United States Dollars when compared to Canadian Dollars is USD/CAD 1.1000/03 (the Bid is 1.1000 and the Ask is 1.1003, and the spread is 0.0003, or 3 pips. At those rates, a trader wanting to buy one USD would pay 1.1003 CAD, while he could sell one USD for 1.1000 CAD. To put this in practical forex-trading terms, a trader wanting to buy 100,000 USD would require $110,030 CAD, while 100,000 USD could be sold for $110,000 CAD.

If the trader purchases USD/CAD at those rates, and then trader waits until the forex price quote rises to USD/CAD 1.1006/09, he could sell his USD/CAD position for $110,060 CAD earning a profit of $60.00 CAD.

However, if the price for the USD/CAD does not change in the time the trader holds the position, and the traders sells the USD at the same price 1.1000/03, the position would be sold for $110,000.00 CAD, creating a loss of $30.00 (the amount of the spread).

What is a pip? What is it worth?

Profits, losses and spreads in forex trading are often expressed as pips. A pip is the smallest unit of price for any currency. It is short for "Percentage in Point". In forex trading, currency values are usually stated very precisely, to the fourth decimal point. A pip is the smallest change in the fourth decimal place, or 0.0001. For example, for USD, a pip is 1/100th of a cent. The Japanese Yen is the only currency expressed to the second decimal place, making a pip 0.01 in this case.

Forex Charts and Technical Analysis

Often, forex markets are studied through the use of charts that show market prices over a period of time. Traditionally, financial charts were drawn by hand. Fortunately, today such charts are available through forex trading platforms, and are available online on websites such as this one http://forex.tradingcharts.com/chart/ .

Charts are used extensively by traders, to study past patterns of price movement, identify ongoing trends, and to try to forecast future price movement. Technical indicators are often used in conjunction with charts. Simple technical indicators include moving averages. Many complex indicators are available, which involve complex mathematical analysis of price data. Fortunately, online charts do all the calculations automatically, and display the results as overlays on the chart.

Forex charts are usually presented in one of several formats, including line, bar chart and candlestick.

Technical Analysis

Technical Analysis goes hand-in-hand with forex charting. Technical analysis attempts to forecast future price movement through the mathematical analysis of past price action. Various simple tools can be used in technical analysis, such as moving averages, trend lines and support levels, or the advanced trader might choose from a wide range of advanced analyses and theories including relative strength index, Fibonacci studies, cycles, and more.

For more information about charts and technical analysis, see the section "Fundamental and Technical Analysis".



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FOREX GLOSSARY

A
AppreciationArbitrage
AskAsset
At BestAUD
AussieAustralian Dollar
Authorized DealerAutomated Trading System
B
Balance of PaymentsBalance of Trade
BandBank of Canada
Bank of EnglandBank of Japan
Bank RateBar Chart
Base CurrencyBasis Point
BasketBear
Bear MarketBid
Bid/Ask SpreadBig Figure
BoCBoE
BoJBollinger Bands
BrokerBuck
BullBull Market
BundesbankBuy Limit Order
Buy On Margin
C
CableCAD
Canadian DollarCandlestick Chart
CarryCarry Currencies
Carry TradeCash Market
Cash on DepositCBI
CCICentral Bank
Central Bank of IraqChartist
CHFCleared Funds
Closed PositionCommission
Consumer Confidence Index (CCI)Consumer Price Index (CPI)
Conversion RateCopey
CorrelationCounterparty
CPICross Rate
CurrencyCurrency Code
Currency PairCurrency Risk
D
Day OrderDay Trade
Day TraderDealer
Dealing DeskDealing Systems
DeficitDeflation
DeliveryDelivery Risk
Demo AccountDepreciation
Depth of MarketDevaluation
DinarDiscount Broker
Dollar RateDomestic Rates
Donchian ChannelDrawdown
Durable Goods Order
E
ECBECB Conferences
ECN BrokerEconomic Indicator
EquitiesEquity
Escrow AccountEUR
EuriborEuro
European Central BankEuropean Monetary Unit
European UnionExcess Margin Deposits
ExchangeExchange Rate
ExecutionExit
ExoticsExpiration Date
Exposure
F
Factory OrdersFast Market
Fed MeetingsFederal Deposit Insurance Corporation
Federal Funds RateFederal Open Market Committee
Federal ReserveFederal Reserve Board
FedsFill Price
Fiscal PolicyFixed Exchange Rate
Flexible Exchange RateFloating Exchange Rate
Foreign ExchangeForeign Exchange Center
ForexForward
Forward RatesFranc
Full-Service BrokerFundamental Analysis
FundamentalsFX
G
G7G8
GapGBP
GearingGood Until Cancelled
Great Britain PoundGreenback
Gross Domestic ProductGross National Product
H
HedgeHedge Fund
HolderHometrack Housing Survey
I
IMMIndicative Quote
Industrial ProductionInflation
Initial MarginInitial Margin Requirement
Interbank MarketInterest Rate
International Monetary FundIntra Day Position
IQDIraqi Dinar
ISM Manufacturing IndexISM Non-Manufacturing
J
Japanese YenJPY
K
Kiwi
L
Large Retailers SalesLeverage
LIBORLimit Order
Limit PriceLine Chart
Liquid MarketLiquidity
LongLoonie
Lot
M
M-o-MM1
M2M3
M3 Money SupplyM4 Money Supply
Maintenance MarginMajor Currency
MarginMargin Call
Mark To MarketMarket Close
Market MakerMarket Order
MaturityMini Account
MomentumMonetary Easing
Monetary PolicyMoving Average
MXN
N
Narrow MarketNet Consumer Credit
Net PositionNew Zealand Dollar
NZD
O
OfferOne Cancels The Other Order
Open OrderOpen Position
OrderOver The Counter
OverboughtOvernight Limit
Oversold
P
Partial LotPetrodollars
PIPPMI Manufacturing
PositionPound Sterling
PricePrime Rate
Principal ValueProducer Price Index
Profit Taking
Q
QuoteQuote Currency
R
RallyRange
RateRate of Return
Reciprocal CurrencyRegulated Market
ResistanceRetail Sales
Risk CapitalRisk Management
Roll Over
S
Sell Limit OrderSell Stop
SettlementShort
SlippageSNB
SpeculationSpike
SpotSpread
SterlingStop Loss Order
Stop OrderSwiss Franc
Swiss National BankSwissy
T
Technical AnalysisTechnical Indicator
The PoundTrade Balance
Trading PlatformTransaction
Transaction CostTrend
U
U.S. DollarUndervalued
Unemployment RateUnited States Dollar
UptickUS Dollar Index
US TreasuryUSD
V
ValuationVolatility
W
Wholesale Prices WTO
Y
Y-o-YYard
YenYield
Z
ZAR 
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