In forex trading, two core skills determine whether you truly understand the market and make informed decisions:

1. How to read currency pairs

2. How to read price charts

If Lesson 1 helped you understand what forex is and why the market works the way it does, then Lesson 2 teaches you the language of the market—how currencies are priced, how pip–lot–spread directly affect profit and loss, and how charts visually represent price movement.

This is the foundation you need before moving on to any trading strategy.

1) HOW TO READ CURRENCY PAIRS IN FOREX

What is a currency pair?

In forex, you never trade a single currency on its own. You always trade in pairs. Each pair consists of:

• Base currency: the first currency in the pair

• Quote currency: the second currency in the pair

Example: EUR/USD = 1.1050. This means: 1 EUR = 1.1050 USD

In other words, the exchange rate tells you how many units of the quote currency (USD) you need to buy one unit of the base currency (EUR).

How do BUY and SELL work?

In forex:

• You go BUY (long) when you expect the base currency to increase in value

• You go SELL (short) when you expect the base currency to decrease in value

Example:

• If you buy EUR/USD at 1.1000 and sell at 1.1030, you gain 30 pips.

Forex gives traders the ability to profit in both uptrends and downtrends, which is one of the key differences compared to many stock markets.

Types of currency pairs

Not all currency pairs behave the same. They are typically grouped into three categories:

1. Major pairs

Major pairs include the U.S. dollar (USD) plus another major global currency, such as:
EUR/USD, GBP/USD, USD/JPY, USD/CHF, etc.

They are known for:

• High liquidity

• Lower spreads

• More stable price behavior. This makes them the most suitable for beginners.

2. Cross pairs

Cross pairs do not include USD, such as: EUR/GBP, EUR/JPY, AUD/NZD, etc.

3. Exotic pairs

These pairs combine USD with currencies from emerging markets, such as USD/TRY, USD/THB, USD/ZAR, etc.

Exotics typically:

• Move more aggressively

• Have wider spreads

• Carry higher risk
  ⚠️ Not recommended for beginner traders.

Pip – Lot – Spread: The foundation of profit and loss

To trade forex responsibly, you must understand how profit and loss are calculated. This comes down to three core concepts: pips, lots, and spread.

Pip (Price change unit)

A pip is the smallest standard price movement of a currency pair.

Example: EUR/USD moves from 1.1050 → 1.1051 = +1 pip

Lot (Position size)

A lot refers to trade size (how big your position is):

• 1 standard lot = 100,000 units

• 1 mini lot = 10,000 units

• 1 micro lot = 1,000 units

Your lot size determines how much money you make or lose per pip.

Spread (Trading cost)

Spread = Ask price – Bid price
This is one of the main transaction costs in forex.

The more clearly you understand pip–lot–spread, the better you can measure exactly how much you're gaining or losing with each movement in the market.

What are Bid and Ask?

• Bid = the price you can SELL at

• Ask = the price you can BUY at

The Ask is always higher than the Bid, and that difference is the spread.

2) FOREX CHARTS: THE “LANGUAGE” OF PRICE

Charts are how the market “communicates” with traders. While there are many chart types, understanding the three most common ones will help you read trends and price action more effectively.

1. Line Chart

A line chart shows only the closing price for each period.

Pros:

• Simple and clean

• Useful for spotting overall trend direction

Cons:

• Does not show highs/lows

• Removes important detail needed for trading decisions

2. Bar Chart

Each bar shows four key prices:

• Open

• High

• Low

• Close

Bar charts provide more detail than line charts but can be harder to interpret for beginners.

3. Candlestick Chart (Japanese Candles) — Most popular

A candlestick includes:

• Body: the range between open and close

• Wicks/Shadows: the highest and lowest prices

• Color: indicates whether price rose or fell during that period

Candlesticks are widely used because they:

• Are visually clear

• Reflect market psychology

• Contain powerful patterns (pin bar, engulfing, etc.)

• Support price action analysis effectively

4. Heikin Ashi

Heikin Ashi is a smoother variation of candlesticks that helps highlight trend direction.

Limitation:

• Reacts slower than normal candles, so it’s less precise for exact entries.

5. Renko / Range Bars

These charts do not rely on time. They only change when price moves by a certain amount.

Pros:

• Useful for trend analysis
  Cons:

• Less common and not ideal for beginners to start with

3) WHICH CHART SHOULD YOU USE?

A simple recommendation:

• Beginners: Candlestick chart

• Big-picture trend: Line chart

• Deep analysis: Candlestick + multiple timeframes (M15, H1, H4, D1)

• Noise filtering: Heikin Ashi

4) IMPORTANT NOTE: CHARTS ARE NOT ALWAYS “IDENTICAL.”

Many beginners don’t realize:

• Charts can differ between brokers

• Unreliable brokers may:

  • widen spreads abnormally

  • create artificial price spikes

  • delay price feeds

  • trigger stop-loss levels unusually

This can cause traders to lose money even when their analysis is correct.

How to protect yourself:

• Compare charts across multiple sources

• Choose transparent, regulated brokers

• Follow verified trading history on platforms like Followme to avoid “fake performance.”

5) CONCLUSION

Understanding currency pairs and reading charts are the two foundational skills every trader must master. Once you clearly understand:

• how base/quote currencies work

• how pip–lot–spread affect real profit and loss

• how charts reflect market psychology

• and what risks exist with non-transparent price data

…you’ll approach forex trading with far more clarity, confidence, and control.

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▶️ LESSON 1: WHAT IS FOREX AND WHY DO SO MANY PEOPLE TRADE IT?