Some traders have an almost magical ability to look at a chart and tell you what it's going to do next.
Abilities like these are not magical, nor are these traders privy to information that you can not look at. Charts are a great leveller, everyone but everyone, traders for large investment banks, hedge funds, fund managers and pajama traders at home all look at the same charts.
Needless to say chart reading is a bit deeper than looking at a chart and declaring "It's going up".
The secret is that chart reading is a skill like any other, and you can, with a good amount of practice and the right ideas, get very good at it.
Here's what you need to do:
– Learn the basics, what does a candle say, how does it say it? Get good at understanding what a candlestick is telling you about the open, high, low and close (It's basics at its very basic, but you've got to know this to have any chance of getting the next bit)
– Learn some basic chart patterns, what's a flag, a head and shoulders, dojis, pennants, double tops, frying pan bottoms and so on and practice recognizing them . This is where starring at charts really comes into its own. There's no substitute for practice.
– Learn how to recognize a trend – A trend by definition is a series of Higher Highs and Higher Lows (uptrend) or a series of Lower Highs and Lower Lows (downtrend) – sounds simple? Try taking a look at some charts and you'll see that it's never as simple as it sounds, but it's a skill you can acquire and learn.
– Now you need to understand conceptually what has happened. Take an uptrend as an example. Why does the price zig-zag? It does so because there are buyers coming into the market, pushing the price up, then some sellers decide that either they want to take their profits or that the price has gone far enough, but the price Declines, but there are still more buyers so the price never gets back to the previous low, and the process continues, so giving you that zig zag of and uptrend.
This conceptual understanding must be there for all of the patterns that you know, and the only way to get it is practice. I will not lie to you, screen time is the only way to get this understanding, and once you have it, you too will be able to make these mystical calls that are right more often than not.
Source by Mark S Tan