The Right Way to Read a Chart

(Part 7 of ten-part series on Financial Truths)

 

Section 1: What is Technical Analysis?

Section 2: Identifying the Higher-Level Trend

Section 3: Pattern

Section 4: Price

Section 5: Momentum

Section 6: Time

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Section 1: What is Technical Analysis?

Section 2: Identifying the Higher-Level Trend

  • Uptrend: Series of rising lows
  • Downtrend: Series of falling highs
  • Diagnosing trend during choppy periods

Section 3: Pattern

  • Trends (same direction as the higher-level trend): typically consist of 5 waves (3 trend waves and 2 corrective waves)
  • Corrections (opposite direction as the higher-level trend): typically consist of 3 waves (2 trend waves and 1 corrective wave)
  • Basic patterns
  • Advanced patterns: Harmonic (e.g. Bat, Butterfly, Gartley)

Section 4: Price

  • Identify high-probability price targets and zones for trade entry/exit
  • Depth of past trends & corrections
  • Fibonacci retracements and projections
  • Pattern completion targets

Section 5: Momentum

  • Stochastics, MACD, or RSI
  • Examine multiple timeframes

Section 6: Time

  • Less precise than the other dimensions, but don’t ignore it
  • Correction periods should be shorter than trend periods
  • Length of past trends & corrections (e.g. 180 months for long-term cycles, 10 months for intermediate-term cycles)
  • Cycle compression/decompression
  • Fibonacci ratios can work on time as well as price
  • Pattern symmetry

 

Real-Life Examples:

Chart 1: Technical Framework in Action

Chart 2: Profitable Harmonic Pattern Set-Up

 

Intro music by audionautix.com

 

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