Basic Guide on how to read and trade the markets
A Basic guide on how to read and trade the markets invezted.com
We want to categorize the markets and its current state and therefore draw a “Map” , so to speak highlighting the important
“key” levels in order to help us in judging the current market situation and its context based on the buying and selling
pressure , aswell as if the market is balanced , imbalanced or about to change in one of the two states. In order to know
where we are and how to trade whatever is in front of us at the moment.
For this we only need to know the context, location and price action to make an informed decision in all market situations
without getting lost , we do this with the following guide
We do the following in all relevant timeframes , starting with the biggest and work our way down to the lowest.
You can use the following techniques on ALL timeframes , however you should be aware that usually the bigger timeframes
dominate the smaller ones , as long term traders dominate small term traders , due to their size , and risk tolerance (wider
stops etc.) so if you trade a long breakout on a 1min chart wich trades at a daily or weekly resistance level , you have some
big odds stacked against you .
aswell as you shouldnt overdo with drawing in all timeframes from hourly to 30min to 15 min to 5 min etc.. or you will get into analysis paralysis and really all relevant information is allready there.
for our basics we use the Weekly , Daily and Hourly timeframes thats it , anything else can be added later on individual TFs if
needed, due to entering or managing a position ,more on that later..
Start with the Weekly then Daily and last on the Hourly with the following process
First we draw in the levels of support and resistance
One can expect to find support where the most substantial buying has occurred in the past and resistance where the most
substantial selling has occurred. to halt price for further advance and even reverse.
However price may also reverse at extremes due to the fact that there is no interest in following price any higher or lower ,ie
less activity, resistance in this case refers to resistance of a continuation of the move.
Second we spot ranges and consolidations which may visualized due to the all ready drawn in support and resistance levels.we also draw in the “mean” of the ranges.
Traders seek value; value is price over time; price is arrived at by negotiation between buyers and sellers. if value is found
price is in a balanced state and is moving “sideways” limited between support and resistance , the middle of the range
where most of the trading activity is located is considered fair price or “mean”.
Third we draw in trendlines and trend channels aswell as the mean of the channels and the 50% retracements of any relevant trend (intermediate)
Trendlines are simple tools to judge the markets trend direction buying and selling pressure , pace,momentum and stride to
gain an idea on the current imbalance and how strong it is and when its likely about to come to an end.
A Trendchannel is nothing more then a diagonal trading range where price is contained in well defined “limits” of upper and
lower channel lines reffered as overbought and oversold line with a “rising” or falling “mean”
50% retracements are a good to measure the strenght or weakness of a move as it usually indicates capitulation if its broken
or strenght/weakness if it holds.
more in comments...
We want to categorize the markets and its current state and therefore draw a “Map” , so to speak highlighting the important
“key” levels in order to help us in judging the current market situation and its context based on the buying and selling
pressure , aswell as if the market is balanced , imbalanced or about to change in one of the two states. In order to know
where we are and how to trade whatever is in front of us at the moment.
For this we only need to know the context, location and price action to make an informed decision in all market situations
without getting lost , we do this with the following guide
We do the following in all relevant timeframes , starting with the biggest and work our way down to the lowest.
You can use the following techniques on ALL timeframes , however you should be aware that usually the bigger timeframes
dominate the smaller ones , as long term traders dominate small term traders , due to their size , and risk tolerance (wider
stops etc.) so if you trade a long breakout on a 1min chart wich trades at a daily or weekly resistance level , you have some
big odds stacked against you .
aswell as you shouldnt overdo with drawing in all timeframes from hourly to 30min to 15 min to 5 min etc.. or you will get into analysis paralysis and really all relevant information is allready there.
for our basics we use the Weekly , Daily and Hourly timeframes thats it , anything else can be added later on individual TFs if
needed, due to entering or managing a position ,more on that later..
Start with the Weekly then Daily and last on the Hourly with the following process
First we draw in the levels of support and resistance
One can expect to find support where the most substantial buying has occurred in the past and resistance where the most
substantial selling has occurred. to halt price for further advance and even reverse.
However price may also reverse at extremes due to the fact that there is no interest in following price any higher or lower ,ie
less activity, resistance in this case refers to resistance of a continuation of the move.
Second we spot ranges and consolidations which may visualized due to the all ready drawn in support and resistance levels.we also draw in the “mean” of the ranges.
Traders seek value; value is price over time; price is arrived at by negotiation between buyers and sellers. if value is found
price is in a balanced state and is moving “sideways” limited between support and resistance , the middle of the range
where most of the trading activity is located is considered fair price or “mean”.
Third we draw in trendlines and trend channels aswell as the mean of the channels and the 50% retracements of any relevant trend (intermediate)
Trendlines are simple tools to judge the markets trend direction buying and selling pressure , pace,momentum and stride to
gain an idea on the current imbalance and how strong it is and when its likely about to come to an end.
A Trendchannel is nothing more then a diagonal trading range where price is contained in well defined “limits” of upper and
lower channel lines reffered as overbought and oversold line with a “rising” or falling “mean”
50% retracements are a good to measure the strenght or weakness of a move as it usually indicates capitulation if its broken
or strenght/weakness if it holds.
more in comments...
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