Avoiding Common Chart Viewing Mistakes

[RichardCox 10]

Since it is impossible to just instinctively know where prices are heading in a given currency pair at a given time, all traders can do before placing positions is to take the information that is commonly available and use it to isolate high probability trading setups that will have successful results over the long run. Charting analysis plays a major role in all of this but there are some common mistakes that are seen in many cases as traders look to limit their fields of information in order to focus on a certain pricing pattern or support/resistance level.

 

This is essentially the primary value of charts in forex trading, that they can show traders the history of the various ways a currency's value has changed and performed over time. Using these histories, traders can identify key areas where markets have met excessive supply (resistance) and have have difficulties rallying or where markets have met excessive demand (support) and have failed to continue bearish moves. This information can be essential in determining trading parameters (in setting trade exits and entries) and in identifying where the momentum lies for the next impulsive move. But, in many instances, traders can become overly myopic or granular in the way their charts are viewed and while it is true that some information must be isolated (of course, it is impossible to take all of the available information into consideration), there is also a very common mistake that is made when traders look at price activity that is contained in a range that is too small for the stop loss parameters that are being implemented. In these cases, traders can easily “miss the bigger picture” and get caught on the wrong side of the next impulsive move for your chosen time frame.

 

Avoiding an Overly Myopic Viewpoint

 

When traders become overly myopic when viewing charts (which essentially means expanding these charts to the point that only a few dozen candles are visible), the larger trends can be missed and some of the main beneficial charts can provide can be lost. Consider the example below in the AUD/USD:

 

 

Depending on your trading strategy this chart can be viewed in a few different ways. To many, this chart would appear to show that prices are in a downtrend and have shown a corrective retracement into the 1.0580 region. While there is nothing wrong with this analysis, it should be remembered that this is a zoomed focus on the Hourly chart and that pulling out to a wider angle can yield a very different picture:

 

 

Here, the wider view seems to show the opposite scenario, that longer term price momentum is in the upward direction and that more recently prices have made a corrective retracement to the downside. These are both Hourly charts, but the results are very different when a zoomed focus is used.

 

Setting Chart Parameters

 

From the example above, we can see that longer term and shorter term views can very greatly, even on the same charting time frame. Because of this, some general rules should be established in your trading plan so that the “bigger picture” is not missed when trading currency pairs. Of course, there might be very little difference in viewing 100 price bars versus viewing 99 but failing to see a “full view” of price activity in a given time frame can leave a trading analysis distorted of where prices are operating on that time frame.

 

A better idea, in general, is to start with the larger picture, and work your way into the smaller view if your trading plan requires more details. It should be remembered that shorter time frames can be used in lieu of the expanded chart view and, as a general rule traders should consider the following ranges for the accompanying time frames:

 

15 minute charts: 3 to 5 trading days worth of price information

 

Hourly Charts: 2 weeks worth of price information

 

4 Hour Charts: 4 to 6 weeks worth of price information

 

Daily Charts: 1 year's worth of price information

[RichardHK 10]

For what it's worth these charts do not show trends to me! Looks more like a lower and higher trading range with a short bull spike between them.

 

Great how we can all see something quite different.

[henryduncan12 10]

Thanks RichardHK, to share some common chart viewing mistakes. It is helpful for me and new traders as well. Some traders are not able to analysis chart properly and due to this their trading decision sometimes go in wrong direction.