How To Read The Chart (Part-1)

Chart Reading


"WHATEVER THE MIND CONCEIVE AND BELIEVE, IT CAN ACHIEVE" 

                                                                                                                    By Nepoleon Hill


One of the interesting subject to learn is "Chart Reading". The beauty of chart reading is that there is no specific defined rule for reading chart which makes it more interesting and effective. That means person can read the chart in a way he or she wants to read, however the purpose should be clear while doing this. Different people interprets the same chart as per their understanding, experience and mastery in a different way. WHEN YOU DON'T HAVE SOMETHING TO START AND YOU ARE STILL TRYING TO DO THAT JUST THINK HOW BEAUTIFULLY YOU ARE USING YOUR MIND AND DEVELOPING ANALYTICAL SKILL...!! 


I have received few messages regarding how to read the chart ?? what will be the tomorrow's market view?? at what level market will expire on expiry day?? and so on. When i analysed carefully such questions and noted that the reason for all questions is "Not having knowledge of something that can answer all the questions" and that something is "Reading of Chart". Means if you know how to read the chart you will automatically get the answer of your above questions. 

AND THEREFORE I HAVE DECIDED TO WRITE ON CHART READING SUBJECT IN SIMPLE WAY.

In modern times chart reading becoming so simple with the help of various charting software. The day by day use of social media is increased and more number of people are connected with it. Through the means of social media like Twitter, Telegram, Youtube, Whatsapp, Facebook & many more, we keep our self updated with the latest news and updates from all over the world. One of them is "Chart", yes we used to see the chart that different people shares with their own techniques and logic which is good habit of learning. But not all charts that we see are as perfect as they presented. 

For example you might have seen the same chart on two or same social media with different opinion. One may be in view of bullish and other in bearish. And when we see such different opinion on same chart, we only believe that chart in which our position is open, and that is basic human psychology. But point here is that sometime when we see the chart of any person with such a good observation that force you to believe in it. And if our position is open in opposite direction then we choose to exit from our trade. THIS IS TOTALLY WRONG HABIT OF TRADING...!!

Let's understand with practical example. During the period of May'20 to Sep'20 one stock was continuously in news and watchlist which is "Bharti Airtel". Almost everyone was so so bullish in this counter and waiting for breakout above 600. On social media also if you check you will find 90% suggestion on bullish side of Bharti Airtel. But at the end what happened it just fall from 550 to 400. Now why that happened??. It just because people gave more importance to news flows and their mental belief and not the chart. If you look at the chart carefully you notice only one time it has tested the level of 600 with low volume in the month of May'20 and then continuously taking support at 550. And finally breached the level of 550 and created confirmation of bearishness on 31.08.2020 with high negative volume. Even then people were bullish looking to next day movement from 514 to again 550 with low volume. AND THEN GONE...!!!


THE ONLY REASON OF SUCH INCIDENCE IS: BELIEVING ON SOMETHING WHICH WAS NOT VISIBLE AND IGNORING SO MANYTHINGS WHICH WERE VISIBLE....!!!

This happens most with those who think that there is some secret in chart which they are not able to catch. But there is nothing secret in it. The correct method of reading chart is relying on yourself and then accepting the outcome no matter whether it is Profit or Loss. Only thing that matter is your experience and learning from it. Just don't carried away with others opinion on your stock or index, if you do so you are simply passing message to your mind that other's view is right and mine is wrong. And from very next moment your mind starts working according to your belief and starts producing negative outcomes as per your wish. ALWAYS BELIEVE WHAT YOU DO IS RIGHT FOR YOU...!!

In case you are consulting any experts or following any experts/trader on any social media and accordingly working in market then follow him or her blindly and in that case do not use your mind. The reason is if you starts putting your views which is in opposite of your experts and believing that you are right and he or she is wrong, then taking action on your trade as per your view, may create negative image of your experts or consultant in your mind. And same way mind takes your thought and starts producing negative image of your experts or consultant from next time, which will make you confuse about what to do now. REMEMBER WHATEVER YOU FEED IN YOUR MIND IT STARTS REACTING ACCORDINGLY AND STARTS PRODUCING EXACTLY THAT WHICH YOU WANT...!!

Be crystal clear for your work not only trading & investing but also at any level of work, at any moment, for any situation in life. And when you are confused about what exactly you have to do?? Then best answer is starts your own analysis and it is possible for you, if you really believe in yourself.

LETS STARTS READING CHART...!!

There are so many ways to learn & read the chart. But you have to follow the method that suits to you. In which you are more confident, in which you have more faith, in which you believe, that you want to master. As i said earlier there is no defined rule for reading. But we have to create few rules to reach to our goal. Accordingly look at the basic rules that we have to consider before starting reading of any chart.

Rule No. 1:   Chart should be neat and clean. There should be no indicator on chart.

Rule No 2:    Decide the specific Interval of Time on chart. Like Daily, Weekly, Hourly, etc.

Rule No 3:  Write down the purpose of looking to chart. Means what exactly you are looking in to chart?? It may be Support & Resistance Level, Entry and Exit level, High Volume, etc.

Rule No 4:    Keep others view on same chart aside. To avoid conflicts in your mind.

Rule No 5:  Start reading the chart. Ask questions to yourself and write down the same in your note book.

Let's take example of above rule. Below is Bank Nifty Hourly Chart. 


Applying above rule to above Chart. As per my experience i use Hourly chart because i am comfortable with it. I will tell you reason later in this post. If you look at the chart it is neat and clean without any indicator. Rule 1 & 2 completed. My purpose of looking to chart is Support and Resistance level that i have marked on chart with Support around 35450 and resistance around 36650 and completed Rule 3. As i explained in Rule 4 i have totally ignored what people are talking for Bank Nifty next movement, because for me i have clearly told my mind that i will enter the trade once my above level comes and then i will accept the outcome whatever it will be, by this Rule No 5 completed. NO MORE QUESTIONS BECAUSE I GOT THE ANSWER OF MY PURPOSE OF READING, NOW JUST WAIT FOR LEVEL AND TAKE ACTION THAT'S IT...!!!! 

Few people may think that how to know that 35450 is Support and 36650 is resistance. Then let me clear it, above is my own view based on my experience and knowledge. And this experience and knowledge is nothing but my past performance and results. I know that whenever such kind of pattern forms on any chart i look that chart in a same way that i am looking above. For me there is no secret in chart i believe what i see. AND WHAT I SEE MORE NUMBER OF TIMES THAT I BELIEVE...!! And for next time my belief becomes my objective that helps me to read the next chart.

Let me share you one story from the book "SECRETS OF PIVOT BOSS" by Franklin O. Ochoa, which will help you to understand the psychology of mind in co-relation with market.

"Think about the first time you heard a new song. You like the beat and you relate to the lyrics, but they are completely new to you. However, once you have heard this song five or six times, or even one hundred times, every lyric, beat and drum solo has become saved in your brain. You can anticipate the chorus and upcoming instrumental solo. You can even identify the song by hearing a two second shippet. Trading is No Different.Once you have mastered the type of trading days that occur in market, you will be able to anticipate reversals, breakouts, and even you can catch market with high level of accuracy and authority."

From above story you will be now clear about how to develop the skill to read chart, to understand market movement, to predict market. All you need is more and more practice. THAT'S ALL....!!!

Now we are ready to start looking in to chart. We have cleared our mental confusion. We are not clear about how to read the char. What should be our starting point.

Above is basic steps that i have mentioned to start with. Now let's understand what other parameter that we have to consider. For that we have to be clear about what kind of analysis we want to do.

Below are the basis of analysis.

1.    From the point of  View of :    Support and Resistance. 

2.    From the Point of  View of :    Chart Pattern.

3.    From the Point of  View of :    Candlestick Chart.

4.    From the Point of  View of :    Price Action, based on Volume activity. 

5.    From the Point of  View of :    Open Interest. 


The above analytical instruments are used by various traders and investor to predict the market movement. And we have to consider any of the above point of view as our Rule 3 that i have mentioned as PURPOSE OF LOOKING INTO CHART. Do not mix point of view unless you master any one of it. Once you master one of it then go for other one. By doing this day will come when you will be able to predict master based on your mastered analytical instrument.

You all well aware about above instruments and its important. Let me elaborate in summarized form for understanding.

There is separate and specific logic and theory behind all above analytical instruments. 

Like in case of SUPPORT & RESISTANCE we used to see the level where market take support and face resistance at particular level or zone for more number of times. Which later on we consider it as support and resistance level or zone. 

Then in case of CHART PATTERN we used to take entry when particular chart pattern forms on chart like Double Top, Double Bottom, Head & Shoulder, Trippe Top , Tipple Bottom, etc. Now to understand how this chart patterns works, you need to read the psychology of such pattern through the reading of books or you can also learn from youtube where people explain very will about such pattern. So better to first understand and then look the same in chart. 

One more tool of analysis is "Reading Price Action". Price action means something that gives you idea about particular zone where buyers are ready to buy and particular zone where sellers ready to sell based on Volume activity. Many traders are active on such price action based trading tools.

And lastly Derivative data based analysis where we use Open Interest to identify where buyers and sellers are active. With the help of Open Interest we can understand the level of breakout and breakdown. 

NOW LETS DISCUSS ABOUT  IMPORTANCE OF TIME FRAME FOR READING CHART...!!

Again different people use different time period for trading like Daily Chart, Hourly Chart, weekly chart, 15 Minute chart, etc. We all have to select that time period which is suitable to our trading style. For example if you are positional trader then you may use Daily Chart, weekly chart. Same way if you are intraday trader then you may use 5 Minutes to Hourly chart. I am intraday trader and i use Hourly chart for my analysis and trading purpose. 

In my early days i was very confused between different time period and not able to calculate what exactly i have to do. Sometimes i use 15 Minute Candle, then 30 Minute, then Hourly , then Daily and then also end up with negative outcome. Time after time i realized that i have to stick to any one of time frame which is more powerful. So i have started analyzing different time zone and finally decided to go with Hourly Chart. 

The reasons for choosing Hourly chart are summarized below.

1.    During 1st Hour market manage to sustain with overnight news flows.

2.    During 1st Hour market discounts Opening news flows on account of results or corporate developments.

3.    During 1st Hour market trade nearly 50% of trading range with high and low.

4.    Reduce the chances of falls breakout or breakdown.

Considering above points i have selected to to go with Hourly Chart because it gives me at least 80% probability for movement of remaining day, which is sufficient for me to plan my trade. 


On a same line you can also create your own trading time. REMEMBER ONE THING ALL TIME FRAME IS EQUALLY IMPORTANT, BUT WE HAVE TO MASTER ONLY ONE IN WHICH WE HAVE MORE CONFIDENT...!!!

I hope i have covered all the basic points on which you can start your day for chart reading. The importance of Mind power is also explained you very well manner that helps to build the better and greater future. 

So starts from today application of Chart Reading with your own way with the help of above points. I know you can do it. ALWAYS REMEMBER IF OTHERS CAN DO THEN YOU CAN ALSO.!!

Today i have just explained the relationship between our mind and market. And hopefully i am managed to explain you in easy and simple language. 

In Part-2 : I will show another magical technique of Chart Reading that you have but you are not aware about it.  I will also share with you successful traders mind set during trading with practical example.

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Thank You..

Happy Trading.
"Learn & Earn"...!!



(Disclaimers:- Above is Just for educational purpose only.)

(Rule Base Trading helps to Consistent Performance Else Ready for Accident....✈๐Ÿ™†)


   

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