By Sean Hyman, Currency Analyst
www.worldcurrencywatch.com 

Reading currency charts may be second nature to some of you. But I remember the day when I came over to currency trading from the stock market – I was completely lost. Suddenly, I had a whole new trading language to learn, with pairs, lots, pips, etc.

What the heck was a currency pair? Looking at the symbols for AUD/USD or GBP/USD was a far cry from the IBM, Google, GE, and Apple stocks I used to trade.

And what was going on with these currency charts? I was used to stock charts – which told me in a second if my stocks were going up or down.

In fact, I remember looking at a chart for the USD/JPY in those early days of trading. At first, I had no idea what I was seeing. I didn’t know if the dollar was going up or down. I couldn’t even tell if the chart was based in dollars or yen.

So if you’re just starting out in currency trading, please don’t be frustrated if you don’t understand this all right away. There’s a learning curve for anyone who comes over to Forex from another market.

Let’s start at the beginning. In the next five minutes, I’m going to tell you exactly what you’re seeing when you look at a currency chart, so you can get more acquainted with this market.

The 1st Golden Rule of Forex Chart Reading

You’re watching the first currency listed in the pair rise or fall. You can tell what currencies are being charted by looking at the currency pair listed. For example, below you’re watching the U.S. dollar fall versus the Japanese yen, because it’s listed first in the pair.

All currency pairs are always listed the same in a standardized way. For instance, when you’re comparing the Japanese yen to the U.S. dollar, the symbol is always listed as USD/JPY, and not JPY/USD.

Always remember the first currency in the pair is being charted. Knowing this, you can look at the chart above and determine that the U.S. dollar is dropping in value versus the Japanese yen. But you can also tell the Japanese yen is rising in value versus the U.S. dollar.

You can look at that downtrend either way…U.S. dollar weakness or JPY strength. But either way, it’s important to remember that the USD/JPY is in a downtrend. In the Forex market, you could trade off this trend by shorting the pair (or hitting the Sell button on the USD/JPY pair in your trading station).

Or if you saw the U.S. dollar about to reverse its trend, then you would buy the USD/JPY pair.

Tip: Trends don’t change often, so stick to trading with the trend and not against it! As you start trading currencies, you’ll notice that trends simply don’t change very often. For instance, you’re looking at a year’s worth of trading in the daily chart above. So more often than not, the USD/JPY pair has trended lower. Therefore your best bet is to place a trade that assumes the continuation of that trend.