Top 5 tips for chart users

|19th July 2015|
 

With so much information and advice in circulation these days, it’s very easy to get confused by what is real advice and what is actually a sales pitch dressed up as advice. I’ve been there myself and unfortunately it’s usually the latter. Half-cocked ideas put together by people who have never traded but have read enough so they can pass it on to you as advice.

You will get good very quickly, as I did, at spotting what is real and what is not but until then here are 5 very important rules I wish someone had told me when I first began trading.

 
1. Can you see a trend?

This sounds like a very basic question to start with but one where many traders unknowingly often slip up. Have you checked the current trend or just looked at the last few bars/candles. You must look at the cycles on the chart (at least the last two full cycles) as this will determine if there is a trend, and not just look at whether or not the last few bars have went up or down. If there is no trend or you can’t determine the trend then it’s time to move on.

Mistakes like this often happen as a result of ‘chart flicking’ where traders simply flick through their charts looking for the most ‘interesting’ current bar/candle hoping to find a reason to trade. Make sure you have a trading plan in place so you know exactly what you should be doing each time you are in front of your charts.

If you are having trouble reading trend or cycles check out ‘how to read a chart’.

 
2. Stick to the same entry time frame

For beginner trader it’s sometimes very tempting to change the time frame you are looking at in order to simply find a trade. The lure is to always go to smaller time frames as things happen faster, giving the impression there are more trading opportunities. However, just because the charts may look the same doesn’t mean they are the same.

A daily and an hourly chart may have the same appearance but will behave completely differently, so trading on an hourly chart today, using the same method you did last week on a daily chart is likely to lead to very inconsistent trading results.

Trade the time frame you can trade consistently and that also fits within the time frame you have for trading (morning, daytime, evening). Remember you not only have to be at the chart to find the entry point but to also manage the trade.

 
3. Have a watch list

Let’s face it, there are a lot of charts out there to trade. Even if you only trade FX then it’s likely you have in the region of 30 to 40 charts you could look at at any one time. This is a problem. You can’t look at all of them every day, it’s just not practical and doing so will just lead to the chart flicking I referred to in point 1 and you will not really be looking at the charts at all.

Get in the routine of building a weekly watch list so you only look through your full list of charts once a week. Identify charts that have structure that matches your trading style, i.e. if you’re a trend trader, only put trending charts on your watch list. Using a tool such as The Matrix will also help you to build a watch list.

 
4. Don’t rely on indicators

When it comes to indicators it’s very often the case that just knowing a little information can be very dangerous. Indicators in my experience are some of the most misunderstood trading tools used by traders today. How they are calculated, what settings to use and what they are really telling you are all too often missing from a traders trading plan.

If you use indicators and been given or read about various settings, test them for yourself. Never take someone else’s word for it when it comes to trading. We all trade differently so what works for one trader may not work for you.

Another point on indicators is less is more. Don’t clog up your charts with 3, 4 or even 5 indicators, all telling you different things expecting one of them to give you an answer. I recommend two maximum and be sure they complement your trading style.

 
5. Reference multiple timeframes

Don’t confuse this with changing time frames as in point 2. Always stick to the same ‘entry’ time frame once you’ve decided what works best for you, but get in the habit of checking at least 1 time frame above your entry time frame to confirm if it agrees with what you are thinking.

If trading the daily chart it is important you reference the weekly chart as well, just think of it like driving, you spend most of your time looking out the front window (daily chart) but every so often you need to check the rear view mirror (weekly chart) to make sure nothing is going to run right over you.


Conclusion

As beginner traders it can be hard to find a consistent approach as you are constantly bombarded with new ideas. The key however is to always remember the basic principles as I have outlined here and never let the promise of easy money distract you from your goal of becoming a successful trader.
 

By Ray Gilmour