Monday, November 29, 2010

The Daily Note - Reading Charts

Charts? Reading charts? Everyone knows how to read a chart don't they? It's simple, just look at the price, time and candles or lines or dots or whatever. Add to that Stochastics, Moving Averages, Volume, and about a 100-1000 different combinations of strategies and what most people end up with is confusion. Of course with enough time devoted, we can all become master chart readers, but what is probably more important to bring into focus is just how much of it is really necessary for you.

In order to find out which tools work the best for you, you must devote time. Some traders are more technical than others and some use many indicators, signals, bells and whistles to trust a pattern. Some just like all that "stuff" and more importantly some like to play with all the possibilities. Where it becomes a problem is when the playing with the tools is more fun than learning to use them properly in order to enhance trading ability.

Using technical tools can also confuse someone new to TA; especially when trying to use too many at once and not giving each one a chance to be examined on it's own. It takes time to get to know each one's abilities and limits and how each indicator fits your style. Some may enhance some may distract or even mislead your view of the charts.

The best way to start, in my opinion, is with what I call "Naked Charts". In other words, learn to read the sticks first, recognize patterns, repetitions, and rhythms in the way they line up from week to week, day to day, hour by hour, minute by minute. The longer you spend with candles the easier it becomes to dress them up with trend-lines and other indicators to assist your trades and you'll be better able to decipher which ones suit your needs the best.



Happy Trading, Living and Dancing
Anni


The Daily Pick - FFIV


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