How To Read Chart

[pela78]

Hello, I am Oleg Alexandrov, Market Analyst. I do market research for private clients, trade on my own account, and provide daily market overviews for the Tradunity.com project.

In this thread, I will share my approach How to Read the Charts as a book.

What is Chart Reading

This is reading the Story of the neverending battle between buyers and sellers. By analyzing price & volume relationship, Chart Reader extracts the latest data of balance between Demand and Supply. Thus, he becomes capable to understand the Current Character of the market. Playing in harmony with the Market Character - this is the way to decrease risk and increase profits.

Warning. The main goal of the Market is to make as many fools as possible. Bernard Baruch.

So:

• when majority expect pump - market dumps
• when majority expect dump - market pumps

If you want to know the real reason for market moves - study who lose the money.
Focus on the Causes, trade Effect. Chart Never Lies.

Thanks for your interest. Be continued...

 

[pela78]

Used Acronyms

• ND — No Demand; NDW, or ND-Wave — No Demand Wave
• DB — Demand Bar; DW, or D-wave — Demand Wave
• SB — Supply Bar; SW, or S-wave — Supply Wave
• NS — No Supply; NSW, or NS-wave — No Supply Wave
• SLK — Stop Loss Killer; SLKT — SLK at the Top (bearish sign), SLKB — SLK at the bottom (bullish sign)
• EVR — Effort versus Result; EVRW — EVR wave; EVRT — EVR at the Top, EVRB — EVR at the bottom
• SOS — Sign of Strength
• SOW — Sign of Weakness
• ZOS — Zone of Strength
• ZOW — Zone of Weakness
• SFDB — Support from Demand Bar
• RFSB — Resistance from Supply Bar
• TF - TimeFrame (period)
• Cha Cha - Change in Character

 

[pela78]

It is not, and never has been or ever will be a good idea to tell people when to buy or sell, because once you enter a trade, your emotions take over, and it is these emotions that will impede the trader.

I have never ever heard the real truth as regards to market action on television or in newspapers. As a trader, you will find you are constantly mislead by lies, roomers, misinformation. So on the basis of this information arriving on your doorstep will give you and thousands of other traders a completely wrong feel as to the markets real intent

Believe me, the markets move on the shifts of large blocks of professional money, tipping the balance of supply and demand one way or another, which to the trained observer you can read.

Supply and Demand

We have all heard the pundits in the money section of our news programs telling us that this market or that market, has gone up, down or sideways, for some specific reason or another.

The price of oil has gone up and the stock market has fallen. - for example.

Of course, at another time the price of oil will rise and the stock market will rise too - but nobody ever seems willing to explain this apparent dichotomy. The simple truth is that nobody really knows why news may have caused the markets to move in one direction or another. News doesn't actually drive the markets, it follows it.

Prices are driven by supply and demand. When demand is strong and supply is limited prices rise. When demand is weak, or supply is excessive, prices will head lower. If demand is strong and the news is, bad prices may still move lower, but the market will react less strongly than if the demand had been weak or there was too much supply. The market may even rise despite the worst possible news.

The key to trading successfully is to determine the balance of supply and demand in the market.

Many good traders have a sense of this without even trying, there are 'natural' traders who always seem to be on the right side of the market, but if you are not able to do this instinctively you can learn to do it through Chart Reading Method? And you will be amazed at how much you will learn in a short time.

Follow this thread daily.

 

[Pat494]

Spot on so far

 

[pela78]

Have you ever seen that massive bad news come to the public at the market bottoms? And the best optimistic news bombards public heads at the market tops. So, better not to read the news, read the chart. It has the language that can be translated into the opinion. This is the way of judging the market's character by its own behavior.

 

[pela78]

#BAC #stock chart reading. The part of the market cycle

 

[pela78]

After Distribution range (AB wedge 0.644-0.640), #NZDUSD produced the decline toward 0.636.

I expect a stalling of decline around this level because of two arguments:

1. we have NS+DB sequence on the background (green zone).
2. Bears completed the run equaled the height of the AB wedge. So, target C=B-AB is accomplished.

Watch for Panic Selling on faster TF

 

[pela78]

#NZD on the10m Timeframe

 

[pela78]

The recent moves on #BTCUSD market confirm the cruel nature of the market. Its goal - is to produce losses for the majority. Here is how it does work.

A) Downmove after a period of sideways dull. The bearish activity attracts traders (and their bots) into following the bearish impulse. Traders enter short positions (that is why we can see increase on BTCUSDSHORTS)

B) But if the market is really weak, it not interested in making profits for this portion of just-established shorts. That is why we got the second move B. It knocks out sellers from market by triggering their Stop Losses. This is an SLK move. Green spike on clusters represents the activation of BUY-stop orders. (that is why we can see a decrease on BTCUSDSHORTS). So, when majority is knocking out from shorts - you should sell. This is a way to act in harmony with winning minority.

A+B sequence tells a more bearish story. So, price has more chances to make the next step down.

 

[pela78]

#Gold Overview. Mixed Data from 3 Sources.

Fake (or False) breakout is one of the most tricky things in trading. This is how the market (professional side) make fools (losses for retail traders). The number of Fake Breakouts increase at the psycho levels (round numbers). Look at 1550 blue line. We had very clear breakout divided into 2 parts:


1) Evening of 04 Sept (Blue arrow). Everything looks bullish, but look at the response


2) Red Arrows point at price falling amid an increase in volume. This is genuine Supply activity after Non-professional bulls were trapped above 1550. (Check the history - you will find Minor Trap Up-moves before Major Break Down in the 90% of cases, even on news events).


On the following days we got Stop-Loss-Killing above 1525 level (circled) and the test of center line of the upward channel.


Well, what is next? Actually, market is quite balanced. We have support from bottom line of up-trend channel with Demand Surge (green line) on the background. But if the bulls are really strong, we should see some sort of quick bounce from the line of support. Instead, price is chilling around 1500.


Intraday clusters (see additional chart) show the attempt of bulls to drive price up (after Trap for bears). But this bullish attempt can be quickly exhausted with mentioned signs of weakness above 1520. So, short-term outlook is neutral.

 

[pela78]

This is #AAPL #stock, yesterday Price & Volume action, intraday fast TF. I use this chart to illustrate the principles that do happen in every market.

The average trader can see here Head and Shoulder's pattern. What does see Chart reader? Up-Waves with exhausting of Bull's power.


1) The first up-wave collects 574k of Volume
2) The second up-wave collects 301k of Volume

3) The third up-wave collects 243k of Volume


The Volume on up-wave diminishes. It means the Exhausting of Demand Power. As a result we got "P" formation on the profile. What is the inner working? 1st up wave attracted FOMO buyers who wished to follow the rise of price. Professional traders use the FOMO surge in order to establish shorts. Study the clusters. If the busi trading activity above 219.30 does represent the real strength, market should pump. But it did trade in the range. So, "P" profile is the hidden Weakness.


And the appearance of Sellers (arrow 4) is a moment when retail bulls found themselves in bad positions. The appearance of Supply after No-Demand sign - is a signal to short. This is a way to trade in harmony with market.


So, does SHS have more sense now?

 

[pela78]

Here is the intraday 5m cluster chart (or footprint) of #AAPL #stock.

But the described principles below are valid for other markets/TF. Just think how people lose money - and charts become more full of sense.


1) market forms minor low. People tend to "hide" their SLs under low such this. Minute by minute, the number of SLs are growing there. When market "see" the number is big enough, it...
2) ..drop right there. This is an SLK - stop-loss-killing action.

3) And one more shot to kill more SLs.


4) Here is Demand wave: a) green clusters b) strong close c) breaking resistance. Plot SFDB on this level. Market should find support around 2019.80-219.90.
5) Supported.


6) This is a Trap for bears. Not very obvious. But study the price action. It was several bars of decline. Indicators encountered people and bots to sell. But what we got soon?
7) Demand bar. This DB was powered by SFDB level.


Market closed at 220.70. Just imagine the emotions of buyers who were knocked out from market at points 2 and 3.


From the short-term picture, market is bullish while price is trading above 220.10-220.20.

 

[pela78]

Is the current VETUSD (crypto) strong?

Well, technically we have a balance A-B, It was broken up by the surge of demand (point 1). Moreover, price is holding above SFDB line (point 2).

But personally I am skeptic about current rally. Look at the bottom. We have green-red indicator. It represents the balance between Bids and Asks. If those bids are fake? What if they can be withdrawn in one moment? If those bids are real, why is price moving so slowly in upward direction? The high A was gained easier?

So, we have buying signals on this chart (for example testing SFDB line), but personally I do not feel the confidence to follow them. Point C looks as the SLKT Trap.

 

[pela78]

Yesterday I wrote about my skepticism related to VETUSD market. Actually, it made a step down as other Alt-Cryptos.
This post is dedicated to EVRt sign. I pick ETCUSD market to outline this sign in better details.

Study the behavior of price /volume when the market did reach blue circle level. Think about the volume as the quantity of effort. And measure the result on the price axis. You can make a suggestion - bulls have spent a lot of efforts to push the market higher, but they did gain small progress. Market profile forms a shape of "P" letter. And how can the inner working be described? Professional traders put a lot of SELL-Limit orders above high A. That is why we have big volume and a small bullish result. This is a sign of EVRT (a sign of weakness).


Note the following response.

a) Price formed short term balancing wedge (blue lines)
b) Bearish movement - price decline amid rising volume (red lines).

This change in character confirms the weakness in EVRT wave.

What is next?
1) Huge volume down-bar could be interpreted as the attempt of market to shake out weak holders (hidden strength)
2) Price broke up in the upward direction from the balancing wedge (confirmation of strength).
3) Plot the SFDB around at the breakout level. While the price is holding above SFDB - intraday traders have the arguments to play in the bullish team.

 

[pela78]

It was a poor morning for #GBP #GBPUSD. We have a very clear indication of weakness above 1.255.

Falling price is entering the Zone of Support @ round number 1.25. It should produce some sort of bounce up. But Read the Chart. We have a lot of weakness overhead. Definitely, it will be hard for bulls to extend bounce up move into sustainable up-trend.

 

[pela78]

NASDAQ Stock Index Wide Picture Overview

I use daily TF, data from CME, futures market.


I did divide the chart into components - waves. Let's analyze every component and combine them into the opinion.


A) Upwave 10/March-2/May. This upwave formed a busy trading range (1) around 7375, and culminated on 7850 level (2). We can see a spike in profile (2), this is a distribution stage. I believe, news was good. And professional operators unload their holdings onto buying rush of FOMO public.


B). Downwave started on Monday 05/May. We got 4 red candles in a row, the first time for a long time. Volume did increase. Declining price amid falling price - is the typical bearish behavior. If Chart reader were able to detect the distribution range at the top of up-wave A, this decline did not make a surprise for them.


Note, price bounced up (3) from profile spike (1). But we can see ND sign (lack of buyers) at the top of bounce movement (15/May). As a coincidence, the supply did arrive on 16-19/May.


Downwave B Culminated in form of Panic volume spike and Fake penetration (SLKB) of the low of the up-wave A. Many investors had to turn bearish (enter shorts) because their systems detected the first lower low. But it turned into the Trap for them.


C) The general shape of up-wave C builds the vision of the letter "P". We have a lot of volume at the top of the wave. As you can see, profile spots the spike at 7950 level (4). How can we interpret it? Another range of Distribution? Oh yeah. Market penetrated the top of the up-wave A. Many investors had to turn bullish (enter longs) because their systems detected the higher high. But it turned into the Trap for them. 25-28/July were No-Demand days.


D) On 29/July, the new Supply-wave did start. It culminated (Intraday Panic Selling 05/Aug) at the level of horizontal spike (5). That downwave formed shape with profile spike 7475 (5). Later. this level was tested (6). And after SLKB Trap on 25/Aug (7) ...


E) ...a new up-wave was started by Demand Bar on 4/Sep (8). But as you can see, the character of the movement is not very speedy and easy.


So, what is the judgment?


We have HEAVY supply around 8k level. Despite the market is trading within the current up-trend wave, IMO, bulls have no enough power to overcome 8k Resistance soon.

 

[pela78]

Let's take a wide view on Bitcoin/USD market. I use 3D TF and average data from 5 Major exchanges.

Read the Chart:
1) No Supply under 9k

2) The surge of demand broke out 9k resistance.

So, we have 9k support after 1+2 actions.

3) Buying culmination above 12k. Check Google Trends. "Bitcoin price" was extra-popular on the 25-20/Jun days. This is a sign of FOMO Climax.

4) Bounce up from 9k Support. If the market were bullish, it should overcome the Jun/July highs. However, we got only a fake breakout of 12k level (5)

6) The second bounce up from 9k support. What the result? Price did not even reach 11k.

Well, the inability of market to rally after bounces from support line - is the bearish sign. The last 4 red bars have low volume. Why trading activity is low? If market has a lack of buyers (demand), then we should expect the breakdown of 9k line with an increase in volume (supply pressure). In this case (I believe in), the decline should develop down to 6k support.

 

[pela78]

In the previous post I wrote:


we should expect the breakdown of 9k line with an increase in volume (supply pressure). In this case, the decline should develop down to 6k support.


So, the bearish journey toward 6k has begun. Actually, It has begun... much earlier.


Take a look at the big vertical picture: to know what I mean.

 

[pela78]

So, what the chart of Gold does tell us? (I use data from Oanda, futures market charts are quite same).

On the first view, the eye catches up-trend wave (blue lines). But let's take into consideration volume and its relation with price action.

1) On 13-15/August, we had a spike of volume (red vertical zone). I always stick to high spikes of volume in order to for the story from chart. I plot the red horizontal line at the high of those days - 1535. Since that time we had several attempts to overcome 1535 level.

2) The first attempt. Volume is massive, close on the low - not very optimistic. It is more bearish sign revealing the heavy supply above 1535 level.

3) Next attempt. Close on the highs, but we have only tiny penetration of the previous high #2. Low volume represents the lack of sellers.

4) Next day is big red down bar. There is an important thing - volume. It increases on down bar. You have no bar like this on the chart. 05/Sept was a day when Sellers did appear - they gained a big result actually. This is Bearish change of the character. Supply impulse was too powerful to push price toward the low line of the up-wave channel. On those levels, market has found a bullish party, but...

5) ...after 3 green up-days (20-24/Sept), we got wide down bar (yesterday). It fast erased the progress of previous up-bar and moreover - it formed another attempt to breakout above 1535 level.

So, price is approaching back down to support. The unwillingness of market to bounce from support line - a sign of weakness.

Taking into consideration mentioned above facts, we can build the following opinion. Definitely, 1535 is powerful resistance. It was started by the 13-15/August extra-high-volume days. So, current Range 1478-1535 could be interpreted as the Distribution Range. If price refuses to breakout on higher levels, it should be interested in breakdown.


BTW, Some analysts can find Head & Shoulder (SHS) pattern here. Let it be the confirmation of the Distribution opinion.

 

[pela78]

Setup for shorting

Every market is moving within neverending cycle: ...balanced -> unblanaced -> balanced -> unblanaced -> balanced -> unblanaced -> ...
Balanced markets cover 80% of time. Trending markets last 20%.


It is hard to understand, but many cycles are developing at the same time on different timeframes. Learn more in Peter Steidlmayer original materials.


The zones of balances can be detected on chart as they form the triangle shape. The zones of unbalance forms trending movements (pumps and dumps).


Here is a pair if the #BTC chart. On the top side - 30m bars, it shows the triangles of balances. The goal of a trader is to find low-risk opportunities. Where do they hide? Think from the point of view of market balances. From my point of view - the rational answer is:

• sell at the top line (resistance) of the new balance after the previous balance was broken down
• buy at the bottom line (support) of the new balance after the previous balance was broken up

On the bottom side - clusters tick chart. It shows the details and confirmation to open the trade. A lot of green clusters - minor buying culmination. Some sellers are knocking out amid triggering their SLs. Some buyers enter breakout longs. Soon, they both will find they made a mistake. This is your setup for shorting.