This is part 1 of my series in how to read a forex chart and recognise chart patterns. Included here are trends, trendlines, support and resistance, japanese candles and much more.
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Give a man a fish and feed him for a day. Teach a man to fish and feed him for life. Novice traders are inundated with new indicators, systems that promise the earth etc. This is just good marketing- ignore it. Mention technical analysis- pure TAs feel everything is in the price Biased towards news trading
Many people do try to trade blind though Come back to this when they have more knowledge and ask them what they see. At the end of the workshop you should be able to recognise chart patterns on this slide!
Explain KISS. Don’t overcomplicate. Hitch on the back of the major traders by following the trend. Millions of traders will see the obvious patterns hence self-fulfilling prophecy in a way. On the other hand, technical analysis can be much more straightforward. Many traders even consider it to be a self-fulfilling prophecy, meaning that it works well because so many traders use it. This is an important aspect of technical analysis because if many traders are basing their decisions on technical indicators, then the indicators must be watched since they reflect the sentiment of the market and the majority of the traders.
Currencies are the most trending markets in the world.- That’s good! Market can only go one of 3 ways, up, down or sideways 1 st thing you do when you open a chart is ID the prevailing trends. Short-term and long-term
Higher highs and higher lows Mention market never goes straight up or down but retraces, or zigzags. Note the swing high and lows. Explain the concept.
Lower highs and lower lows
Show example on laptop say 7 th -14 th May in different timeframes. Show several Swing High and Swing lows. If day trading today’s trend important but long term trend must be clear in your mind. Trends classified by timeframes. Major/minor, .long-term/short-term
High/Low (ZigZag) indicator Important to note the swings
Price action is a constant battle between the Bulls and the Bears
Within this bull market there was a bear market from June to Aug. – Hence trends within trends
Within this bear market was a bull market from July to Sept.
Go back one slide and show a couple of examples If you are long the GBP (base currency) then you are short the USD
Candlesticks are formed using the open, high, low and close. If the close is above the open, then a green candlestick is drawn. If the close is below the open, then a red candlestick is drawn. The filled section of the candlestick is called the “real body” or body. The thin lines poking above and below the body display the high/low range and are called shadows or wicks. The top of the upper shadow is the “high”. The bottom of the lower shadow is the “low”.
Long green candlesticks means lots of buying is going on. The longer the body, the father apart the close price is from the open price. This means bulls are being aggressive and winning the battle with the Bears. Long red candlesticks means lots of selling is happening. The longer the body, the farther apart the close price is from the open price. This means that prices fell a great deal from the open. In other words, the bears were the aggressors this time and were winning Show short bodies on chart Easy on the eye compared to other types of charts Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Green candlesticks, where the close is greater than the open, indicate buying pressure. Red candlesticks, where the close is less than the open, indicate selling pressure.
Go back one slide and show examples
Elastic band theory.
Major highs, highest points for a year hence significant
Many people ignore S and R because it is not glamorous, or complicated or “latest fad” enough for them. But everything revolves around it. The market spends most of its time bound within ranges When setting up your charts, after you’ve ID’d the trends then ID the levels of S and R
To go higher the market has to take out these highs of resistance Major highs offer more resistance. The reason why price has trouble breaking these levels is the presence of actual orders around these levels. A resistance level is a price area where sell orders tend to be, and so it takes more than normal buying pressure to break that level. In other words the peaks ® represents the price levels at which selling pressure exceeds buying pressure. Price struggles to go higher
A support level is simply a price area where buy orders tend to be, and so it takes more than normal selling pressure to break that level. To go lower the market has to take out these levels of support Major lows offer more support
The old high becomes the new low The more significant the level of support then the more significant it will be as a level of resistance Higher timeframes more sig. Concept of major high and low
When prices penetrates the last most recent high and makes a new high, then the recent high is your new reference point for a key level of support. -Vice-versa This is very important because the larger institutions with big volumes are committing to the new price levels and it is in their interest for the flows to continue in their committed direction. They use the previous level as a primary reference point for trading. Sometimes they will take great measures to defend these levels to prevent price moving against them.
Go back to slide 23 and show some R becomes S there. One simple way to use support and resistance in trading is to simply trade the range: in other words, traders can simply buy at support level, and sell at resistance level. A key advantage of this is that the FX market is range-bound a majority of the time, making it an attractive strategy for many market conditions.
Explain daily highs and lows and their importance/ Higher timeframes more sensitive, less risky(More sensitive) means more likely to offer good S and R Show chart of smaller and larger timeframe and S and R Higher timeframes more sensitive and hence less risky to trade./ Seen by major players If you can’t make sense of a chart move to a higher timeframe and look again Find your signals in higher timeframes but look to time entry on lower ones. Use daily to define overall trend, and hourly for intra day trend with 15min and 5min for entry and exit. Use Daily to define overall trend, and hourly for intra day trend and 15 min for entry and exit along with 5 min.
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