There is much more to trading than just opening up your charts and looking for an entry signal. In fact, (don’t tell anyone this) a good price action trader knows how to set up and analyze his or her charts so well that they may not even need a price action “pattern” or “signal” for a trade entry. Indeed, the underlying market bias, which is defined by the structure of the market, i.e. trend, key horizontal levels, etc. can often provide us with enough clues to spot a potential entry. Hence, learning to identify and plot these pieces of the technical analysis “puzzle”, is very, very important.
In today’s lesson, I am basically going to walk you through how I do my daily and weekly chart analysis which you can see in my market commentaries. The primary pieces of this puzzle are: Clean black and white price charts, key levels, trends, price action, market bias and signals. As a result, these things are my main focus when doing my analysis and market commentaries, because learning how to properly map a market is vital to understanding how to properly trade with price action.
Why I Use “Clean” Charts & How to Set Them Up
Clean charts, or indicator-free charts, are the backbone of my technical analysis and price action approach. If you don’t yet know why I prefer clean, naked price charts, check out my article on why indicators will destroy your trading. Suffice it to say, I subscribe to a simple, less is more trading philosophy, and for some very, very good reasons, which I have written about often.
If you don’t yet use clean, indicator-free price charts, I have an excellent tutorial on how to set up your charts here that you definitely need to check out. You can also the download the metatrader trading platform we use here.
Here is a simple way to set up your charts properly:
First, you will right click on the chart and then select “properties” at the bottom of the pop up menu. Once you do that, you will see the following screen for chart options. First set the colors and other options how I have them in this image:
Next, you will select “common” and set the options as follows:
That’s a basic overview of how to quickly set your candlestick charts up exactly as mine are. Remember, there is a reason why I set them up this simply; because simple is better in trading and we are trying to eliminate variables that may confuse us or cause doubt, fear, etc.
How I Analyze Clean Price Charts
When writing my weekly members market commentary, the first thing I do is zoom out on the weekly chart, because I want to get that bird’s eye top-down view, this gives me a good idea of what has happened and how that may influence what currently is happening.
In the chart below, notice I’ve zoomed out to the weekly view of the current Gold charts. I have marked the most obvious key levels of support and resistance. Note, often these levels will “flip” from support to resistance or vice versa, as price moves up or down:
In the chart image below, notice I’ve zoomed out so I am looking about the last year’s worth of data on the daily charts. This gives me plenty of time to see how the previous year’s levels and trends, as well as price action, as led us to the current point. You will see what I’ve drawn in below on the chart, these are the levels I view as the most relevant as well as the areas of consolidation and trending price action, these are the first things I am looking for when I do my price action analysis…
In the next chart, we have zoomed in a bit more, but you’ll notice the same levels are there. We are going to dissect things a bit more here.
First, notice the bullish tailed bar on the far left of the chart, this was clearly an important turning point from down to up, so we will draw a horizontal level at the low of that bar; this level would once again be relevant if price fell back down to it. Then, notice price entered into a period of sideways consolidation for almost two months, before breaking up and out of it. However, after the breakout, price chopped slowly higher and then formed a bearish pin bar at 1237.00 area; a resistance level we had previously marked on the chart. Now, whilst this would be considered a “counter-trend” pin bar, which usually i don’t like, since it was at an important level we already had on the chart, and there was a clear target below at the previous breakout level of 1212.00 area, savvy price action traders could have considered a short-term trade targeting a move into that level. Note: 1212.00 or really 1215.00 – 1205.00 area was a very strong zone of support due to the previous breakout and I would have been looking to get long on a pull back to that area after the upside breakout.
In the next chart, we are looking at how when a market swings, it leaves behind a level, and we then watch those levels for pull backs to trade in-line with the existing momentum.
Notice the areas marked “watch for pullbacks”, we would have been watching for price to pull back to these levels after it broke above them, to get long and trade in-line with the bullish momentum that was clearly developing. Ideally, we would get a price action signal at these levels after price pulls back to it, but this is not always necessary, as I’ve written about, sometimes all you need is a level and a trend for an entry, see my T.L.S. article for more…
Finally, we have zoomed in to the most recent price action of the daily Gold chart.
From this chart, we can see a couple of potential entry signals that formed after pullbacks to 1212.00 area and 1237; again, we had already marked these levels on our charts and were waiting to “attack” should price rotate back into them. Currently, as of this writing, price is hovering just under the key resistance area up near 1305 – 1295 area.
I always think of analyzing a market from the “top, down”. This means, you want to start with the longest time frame, zoomed out, and then you gradually shorten the time frame and zoom closer in. You do this to get a “bird’s eye” view of the market so that what is happening recently makes more sense within the longer-term context. Think of performing your weekly and daily market analysis like reading a book; in order for you to understand what’s happening on page 100, you have to have read and comprehend pages 1-99. It’s really no different in trading; you have to build a narrative in your head from the market you are analyzing, and you do this by looking back in time, plotting levels, analyzing the price action and then keeping up with the market each day at the close, adjusting levels or adding news ones as necessary.
Once you start doing this regularly, it will start to become your price action trading routine and eventually it will turn into a habit. Soon, you will thoroughly enjoy it because let’s face it, keeping up with the markets is fun (if you’re a trading nerd like me anyways). So, enjoy it, but also realize that what you’re doing is getting in-tune with the market and its price action, and this truly is a requirement if you want to have any chance at learning to trading professionally.
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