How to Read a Forex Chart | How Does Forex Work?

A price chart is the trader’s primary instrument. It is just a picture of how an exchange rate has changed over time, but learning to read one properly is the difference between seeing information and seeing noise. This guide covers the two chart types you will meet first, the anatomy of the candlestick, and an honest note on what charts can and cannot do.

The line chart: the simplest view

The plainest way to draw a price is a line chart. For each period (say, each day) you take a single number, usually the closing price, and join the dots.

Fig. 1 A line chart of daily closing prices. It shows direction and trend cleanly, but each day is reduced to one number; the highs and lows within the day are discarded. Illustrative data: a synthetic series generated for teaching, not a real market quote.

A line chart is excellent for one thing: seeing the overall trend without distraction. Its limitation is also clear: by keeping only the close, it throws away everything that happened during each period. That is the gap candlesticks fill.

The candlestick: four numbers in one shape

A candlestick chart shows, for every period, four prices instead of one: the open, the high, the low, and the close, together called the OHLC values. Each candle packs all four into a single shape.

Fig. 2 Anatomy of a candle. The body spans the open and close; the thin wicks reach to the high and low. A bullish candle closes above its open; a bearish candle closes below. Illustrative data: a synthetic series generated for teaching, not a real market quote.

Read it in two parts:

The body is the thick rectangle. It spans the distance between the open and the close. A tall body means price travelled a long way from open to close; a short body means it ended near where it began.
The wicks (also called shadows or tails) are the thin lines above and below the body. They reach to the high and the low, the most extreme prices touched during the period, even briefly.

The one detail that trips up beginners: open and close swap places depending on direction. In a rising (bullish) candle the open is at the bottom of the body and the close at the top. In a falling (bearish) candle it is the reverse. The wicks, however, always mark the high and low regardless of direction.

Colour reinforces this. Conventionally, bullish candles are shown light or hollow and bearish candles filled, though many platforms use green and red instead. Whatever the palette, the geometry is the real signal.

A full candlestick chart

Put a run of candles side by side and the market’s recent history becomes legible at a glance: which days were decisive, which were indecisive, where price ran into trouble.

Fig. 3 The same period as Fig. 1, drawn as candlesticks. Each candle now reveals its full daily range. The dashed line marks the most recent close. Illustrative data: a synthetic series generated for teaching, not a real market quote.

A long body with short wicks says one side dominated the whole period. A small body with long wicks says price was pushed hard both ways but resolved nothing: indecision. None of this is prediction; it is simply a clear record of what already happened.

Timeframes: every candle is a container

A chart always has a timeframe, and it is the first thing to check. The timeframe sets how much time each individual candle represents:

On a 1-hour chart (H1), each candle is one hour of trading.
On a daily chart (D1), each candle is a full day.
Common timeframes run from M1 (one minute) through M5, M15, H1, H4, D1, up to W1 (one week).

The same market looks completely different across timeframes. A move that is a dramatic plunge on a 5-minute chart can be a single unremarkable candle on the daily. Neither view is “correct”; they answer different questions. Always know which timeframe you are looking at before you draw any conclusion from a chart.

What a chart can, and cannot, tell you

The takeaway

A line chart joins closing prices and shows trend simply, at the cost of intra-period detail. A candlestick chart shows four prices per period (open, high, low, close) in one shape: the body spans open to close, the wicks reach to the high and low, and open and close swap ends depending on direction. Every chart has a timeframe that sets what each candle represents, and the same market looks different on each one. Above all, a chart records the past accurately but predicts nothing; read it for understanding and risk, not for fortune-telling.