How to complete chart analysis

Posted on Posted in Weekly Analysis

So I have myself into a routine of when I analyse charts and what I look for, by doing the same approach each and every time you can complete your analysis in a timely manner.
So between 9-10pm UK time, I complete my analysis on the Daily Timeframes,
There are two main aspects that I look at when flicking through all the currency pairs
1. Current Trend of the market, is it making higher highs and higher lows for a bullish trend, or is it making lower lows and lower highs for a bearish trend
2. Price Action – Any price action candles that are showing strong rejection or clear signs of market direction
You shouldn’t spend too long trying to figure these things both out, if you are looking at it a pair for too long then just move on to the next one. If I find a pair that stands out then I will simply shortlist it then carry on with the rest of the pairs to analyse.

An Example above – A higher high made in a bullish trend and an evening star formation has formed, RSI showing hugely over bought on the Daily Timeframe too.

Ideal Daily Candles to see

  • Pin Bar/Hammer Bar
  • Engulfing Candles
  • Shooting star
  • Morning/evening star
  • Piercing patterns

So once I have my shortlist of pairs I will then home in on these pairs to find any reversal patterns, identify the support and resistance on the 4H charts, this will help me spot potential entries I could get in on the markets, entries are helped by using Fibonacci Retracement with favoured entries being above 50% Fib Retracement

So as part of my trading plan I look out for any Flags, Triangles, Pivot levels, Significant levels that might help provide me with additional evidence in order to take a trade, but just remember indicators are only showing you previous action on the charts and are known for being lagging. RSI chart levels have to be either at oversold or overbought levels and looking for some divergence

They do not represent what is currently happening or what will happen in the future

So for example on USDCAD

So its about finding a price that you feel is good to enter that pair and awaiting it to hit – be picky with your entries as you want to give yourself the best possible chance of succeeding.

So when I find my ideal entry – I will look to see where my stop loss will go, as I tend to day trade mostly I like to keep my stop losses below 50 pips, but I don’t just choose a random price for stop losses to go at either the Last Swing High or the Last Swing Low – so these have to be within range for the trade to meet my criteria, if the last swing is 100 pips away then I will simply invalidate the set up and move on.

Identifying the recent support and resistance is important as ideally you would want to sell at resistance and buy on support levels, should the support get broken then await a re test of that level and await price action evidence for that level acting as resistance, like wise if resistance is broken then await price action to show you that level is being used as support before buying.

By doing this helps you keep an open mind on the pair rather then convincing yourself that the market is going one way

Example below

Awaiting these breaks will help with longer term moves – plan the trade and let the trade come to you, when you trade inside consolidation it can involve a little bit more guess work as you are trading in between support and resistance

Targets

These are normally found using pivot levels or identifying larger areas of support and resistance – reasons being you will have a lot more people getting in and out the market at these levels, so best to get out 10-20 pips before all the noise.

So once your criteria has been met, just simply wait, forex is about waiting and being patient, if your price you have chosen has not been hit then simply do not enter, it could take a day or a week for your price to be hit, When we shorted the DAX a couple of months ago, I picked a price to short it and we waited just over 2 weeks for that price to be hit, we hit that price it rejected away and we then entered short

Once I have identified potential set ups on my shortlisted pairs (which has taken no longer then an hour I will just check the charts every now and again to see where we are, if we are close to the price I have chosen I will monitor it closer to await price action to tell me to enter the markets.

So identify your set ups, plan effectively, then you don’t have to keep checking all the pairs all the time for an opportunity, if an opportunity arises on one of the pairs that I haven’t shortlisted then I am likely to miss it as its near on impossible to monitor all pairs all the time, unless some news comes out that I see that’s causing a move that will make me look at the chart.

By doing things this way may help you better with your analysis to be timely, some people only choose to focus on a few pairs, which can be good, but also can be bad, reason being is because if there is no opportunity you can find on one of the pairs that you look at then you may force a trade, because with newbie traders they sometimes feel that they always have to be in a trade and get anxious when they are not.

Identifying Trends is important for your set ups

Bullish Trend

You can see higher highs and higher lows being made, using a ascending trend line will help you with this.

Bearish Trend

Lower Lows and Lower highs being made on this pair, using a descending trend line can help you identify areas to sell at to follow the trend, once it reaches the lower high point.

When trading with the trend, it is easier to hold trades longer term, if you are trading against the trend then just ensure that you don’t hold the trade too long, unless something has changed fundamentally in that economy that will cause a trend change (increase in interest rates or political uncertainty being removed)

 

You may have a perfect set up that never reaches your price to get in the markets, but that’s just how us as traders have to deal with these issues, we don’t jump in at the wrong price to mess up your plan. Although you may have the perfect set up you can still get stopped out, again its about dealing with it, keep the same approach and just go again.

I hope this small write up helps, I will keep these more regular also to provide further insights. Ensure you attend both mine and Matts trade planning webinars as this gives you the best insight into how we analyse a pair and you can ask questions to us live so we can help you understand it better, we are two different types of traders so it will help you on a broader scale.

If there is anything else you would like to see on these then let me know and we will try and sort it out.

Charlie Hill