Chart Reading Stocks, Futures or Forex
Reading charts is much more than just looking at candles, Bollinger Bands, RSI, Moving Average, etc. Any one candle represents the time frame that a user is utilizing; one minute, five minute, etc. The candle wick will represent the high and low price reached during the candlestick time frame. A wide or larger candle indicates interest – whether up or down, depending upon the chart trend. Short candles indicate low volatility or little interest. When trying to read a chart, a trader must be in tune with not only a particular stock but also, trading volume, level II activity, action of other stocks in the same sector, overall market action, upcoming economic data to be released, time of day related to the closing bell, ongoing worldwide or geopolitical events and any other factor which may have an adverse affect on the stock or the stock market in general.
When looking at a chart, the first thing a trader needs to determine is whether it is trending up or down. Has the stock just begun its trend or is it near its end? Have the candles pierced the MA? Are the candles riding above or below the MA? Has the RSI topped, bottomed or on its way, up or down with room to move? Does the chart show higher highs or lower lows? Are the candles red (indicating a down trend) or green (indicating an uptrend)? Is the trend smooth or sloppy? Smooth charts generally indicate a particular trend is in the works – sloppy charts mean direction is clueless and its best leaving well enough alone and just move on to another stock.
Yes, this is a great deal of information to absorb to *just read a chart* however; over time a trader implements all these factors plus more, into their decision when trying to read a chart and make a trading decision. There are numerous indicators available for traders to utilize in their chart settings and as with anything, too many indicators can be detrimental to the success of a traders ability to get a true read on any stock. Too many indicators may confuse a trader who is working to develop a perfect chart setup to be utilized for their individual trading strategy. A perfect chart setup does not mean a trader will post profits on every trade they make by utilizing their chart platform. The perfect chart setup is one that a trader can use for any stock they wish to monitor whether it be a $300 stock or a $2 stock – what works for one should work for the other – general rule of thumb.
The ultimate chart setup consists of one which allows an individual trader the opportunity to utilize what is in front of them, to base their decision on taking a position, or not. The continuation of monitoring a chart will enable the trader the chance to determine at what point to enter and exit any trade. Trading based on chart reading is a science which consists of simply acting and reacting. Traders interested in trading by chart reading and trading in general, must maintain a zero tolerance for emotions. A trader cannot and will not trade successfully if they do so based on emotions because level heads prevail. A trader will fail at trading if they attempt to trade while allowing their emotions to get in the way of rational trading decisions.