How do you analyze price data using charts?

Japanese Candlestick provides much context when looking for a cluster of evidence at a specific price point; it can be support or reversal. The limitations of the Candlestick charts are; - It does not provide any information about the price target - There are so many candlestick patterns that one may get lost for years before finding out which one works - During this period, one may even blow up account trading candlestick formations. - They are constant with time; the importance of the pattern is lost if one doesn't know what timeframe they should time entry - You'll never know what formed first: the high or the low - If you trade every Japanese candlestick pattern, you may be, in a way, making your broker rich.

Japanese candlestick charts provide additional context into the psychological dynamics unfolding within the underlying price action, making them the growing chart type of choice worldwide. Specific individual candlestick patterns offer potential predictive insight around what to anticipate next, especially when combined with other chart patterns, technical indicators, trend line violations, etc.

One of the other types of charts or studies is Market Profile that can be used effectively for knowing the point of control and areas where one might enter a market based on the value range established from previous day. I have found this helpful for more than30 years.

Another chart that can be combined with Candlestick charts is Haikin Ashi. This provides perspective to trader and ability to stick with a trade, when Candlestick signals are not clear.

Candlestick charts provide 4 major data points that reveal plenty of insights into price movements. These 4 data points are the Open, High, Low & Close (OHLC) prices. They exist on all time frames and all instruments. Using these data points alone, you could derive key information such as the daily range (By month, week, day, hour, minute, seconds), the wick sizes, the probability distributions of price price amplitudes, and key support and resistance points.

It may take a Day trader or short-term trader years to find out what is his/her timeframe. The stock market is like the Pacific Ocean, giving everyone an opportunity. A stock may have risen 1000% over the years, while a stock may have risen 50% in the short term. What is your period of interest or your timeframe is very important. The timeframe is equal to expectations as well. Your timeframe expects you to have realistic expectations regarding returns, which is unimportant, but in terms of risk, it may give you hard facts that 90% lose. Start with a Weekly Log Chart. Always.

While this description is accurate, it is imperative to combine multiple time frames when conducting analysis. For example, a day trader might look to 5- or 15-minute to take positions, but must be aware of the trend on the daily and higher. If there is a dominant downtrend on higher time frames, the day trader would be better off trading with the trend and focus on short positions.

When setting yourself up for a trade, either as a one off or if you are a full time trader, it is always important to get what is referred to as ‘multi timeframe perspective’. Start by looking at the longer term timeframes and then increase the granularity. You are likely to discover different timeframes contradict each other. If you see what looks like a short term buy opportunity on say the 5 minute timeframe, but a sell on say the 1 week timeframe, then you may want to reduce your price targets. When looking at choosing what timeframe you will focus most your analysis on my experience has shown it should be how long you plan to hold the trade for. A scalper (very short term trader) will typically use a very small timeframe to match.

Financial time series data is fractal by nature. What this means is that what you see on a higher time frame chart occurs in lower time frame charts as well. Choosing which time frame to trade depends on the size of opportunity one is going for. For example, if the average candle range for a M15 chart is 20 pips on EUR/USD, it is unrealistic to expect a 100-pip return on just one M15 candlestick. On the contrary, a weekly candlestick may provide sufficient upside or downside movement to attain that level of return. With that said, the type of strategy may differ depending on the time frame of charts used. Typically, mid to long-term traders would focus on higher time frame charts while scalpers would focus on lower time frame charts.

- Timeframes are to each his own. Below is my view on who can typically refer which time frame. - However, the golden principle remains, 'Higher timeframe always rules', which means, major trend is denoted by higher time frame Monthly charts & Weekly Charts - To get an overall pulse of the index / stock Daily chart - Positional / Swing trading & investing 1 Hour / 2 Hour / 4 Hour charts - BTST/STBT/Swing trading 30 minutes / 15 minutes / 5 minutes - Intraday trading 1 minute - Scalping

There are typically 5 indicators that are used by 80-90% of traders. This has been the same across multiple brokers I have worked at. - Simple Moving Averages (SMA’s) - MACD - Stochastics - RSI - Bollinger Bands A special mention needs to be made for Pivot points and Fibonacci retracements, as they are seen as indicators but classed by many brokers and platforms as drawing tools. There are however well over 100 other indicators out there. Some people go as far as building their own but my advice is always to start with the basics and make sure you are using the right indicator for the type of market you are trading and the type of trader you are. You don’t even need to use indicators, some traders don’t even use charts!

- In my experience, Price is the BEST and the ONLY indicator. Market follows mean reversion behaviour, which means, every price will come to its Mean value. - So along with Price & the resultant Resistance & Support patterns, do look out for the Moving average, it is a direct result of the price over a period of defined intervals - Typically, I refer to the 20 Simple moving average, which can be referred across different time frames. Observe how price moves when touching it, breaking out / down from it.

All indicators derive their values from price, and / or time. The 2 main archetypes of indicators are: Lagging vs leading indicators. Lagging indicators such as moving averages are formed post-price movement while leading indicators aim to "predict" future price movements.

One of the key points one can derive or absorb is that there are so many patterns. Unless the risk is reduced with the formation of the pattern, that pattern is not worth tradeable or sought after. For example, a pattern like an inverted triangle is not worth trading. A rectangle pattern over 5% of the distance between its peak and trough during formation is useless. To say it, It is not worth trading for the short term. A pattern that minimizes the risk and its formation gives a very clear price objective and smaller risk. It must have an element of mathematics. If it doesn't, it's an art or subjective aspect that can be argued upon.

The most important thing is to keep it simple! Locating the last tops and bottoms, and see if they comes higher or lower - will give you a quick overall view of whats going on!

Charting is the most famous form of Technical analysis; while technical analysis focuses on studying price, there are certain limitations. A chart is a graphical representation, and the limitation comes in the behavioral aspect of the person looking at a chart. Remember, it is not a chart that is giving false or misleading signals, it is the interpretation along with biases that causes one to interpret it wrongly. There are various biases, but let's understand them at some other time. Limitations can be minimized with binary rule, a process-oriented approach with a decisive outcome. Lastly, Risk management is everything. If you don't know your risk appetite, you should not be looking at a chart with all the biases in your mind.

Trading is a game of probability. Charts help you to have the odds in your favour. While it is true, that indicators may give confusing signals, knowing when to apply what and when to ignore a signal is what makes a pro trader. More than the charts giving false signals, it is the trader who is making a mistake. So, the main thing a trader needs to do is master their psychology. This will give the require discipline to stick with whatever situations market creates.

Charts, in my opinion, especially candlestick charts, show human psychology at work. Charts reveal the repetitive cycles of fear, greed, and uncertainty. Charts reveal the dominant players in the market. As traders or investors our goal is to make money and therefore we want to go with the dominant players. Learn how to effectively analyze charts to determine the feelings of this dominant group. It represents the footprints of money. When you find one or two chart patterns that reveal this dominant group, trade those patterns over and over again. Remember, because charts represent human psychology, it is important to achieve some measure of self-mastery before trading mastery can be achieved.

The often overlooked reality for retail traders is that retail brokers typically restrict the amount of price data made available through their platforms. That means that if you have an indicator that is plugged onto a chart provided by your broker, chances are, the number of candles that you could look back on is limited. To overcome this limitation, you could purchase tick data from 3rd party sources to perform your analysis. Another thing to note is that whipsaws and sharp movements in prices (hence, in charts), are often created during major news releases, such as nonfarm payroll and monetary policy & interest rate announcements. These may distort or impact one's analysis and trading.

Humans are habitually emotional creatures and that creates the inefficiency that shows up as patterns which are recognized in price action or charts.

Financial time series data, when used correctly, is ideal for quantitative analysis to derive trading & investment strategies with positive expectancy. The reality is that 70% - 90% (according to published data by retail brokers) of retail traders lose money in the long term. But that does not mean that making money as a retail trader is impossible. With the right infrastructure and approach, it can be a fulfilling endeavour.

- It is good to look at charts, and one can master it, learn it and develop an acumen par excellence - However, the market does not care. It only rewards the ones who have a high emotional & psychological control over their trading / investing behaviour - So while there is ample focus on competency elevation in technical analysis, trading is much more than just that. Managing risk & emotions is 90% of successful trading, 10% is the strategy.

Anyone reading this I implore you to take my advice on this. If you’re reading this you’re out scouting the Internet to find information on technical analysis. If you just want to learn what it’s about fine. If you’re going to take trades risk money, I suggest that you stop the futile search on the Internet were 98% of what you’re reading is either inadequate or completely wrong and find yourself a mentor. Do your research to find somebody who you trust and stick with that person until you’re making money. Hopping around will not ever get you trained properly. Traders who train himself never make it. And I don’t use the word never likely. Email me if you want descriptions of why you should never listen to news or fundamentals, it is a fact.

Personally i've always thought of financial market charts as human psychology, in number form. Even if the trades that make up that price data were performed by machines/algorithms, a human designed it. That tells me all I need to know- is the market pulling in one direction? Are things range-bound? Sometimes there isn't a clear story to tell from a chart, and that is okay. As investors, it is down to our judgement to choose which positions we take

Technical analysis is a tool. One of the many tools available to make informed decisions, be it fundamental analysis or Valuations, Behavioral finance, Econometrics, Quant analysis, AI/ML, etc. No one tool can be taken at face value, and, TBH, there is no proven way to make money unless developed by your study, analysis and process. Similarly, in Technical analysis, there are over a hundred indicators and patterns, and you must also incorporate money and risk management. The best way to practice this tool is to start with one of the many tools, understand what it is from bottom to up, be creative, and evolve with it daily to make a better trading decision. Use it in conjunction with other different ways that would augment the outcome.