Financial traders analyze and trade based on the charts. Since there are so many currency pairs, commodities, Cryptocurrencies to trade at, it gets tough for traders sometimes to keep track all of them in one go. Traders do need to screen them out and choose the charts that have high probabilities to offer entries. In this article, we are going to learn the attributes that a chart should have which has the high potential to offer entries for the traders.
Let’s Compare Two Similar Charts
Here is H4-NZDJPY chart. Have a close look at this
The trend looks very evident here. On any day, traders would love to wait for selling opportunities on this chart. The trend started from an extremely good level of resistance where the price reacted a number of times. An evening star initiated the trend as well. All those bearish candles do not have long spikes. Only one thing is missing here which is a good length of the trend. The length of the trend does not look very promising here. However, overall it is a good chart and it will be worth keeping an eye on the chart to look for selling opportunities.
Let us have a look at another chart which is the chart of USDJPY.
This is UDJPY chart. The chart looks very similar to the chart of NZDJPY. However, the length of the trend looks better here. The trend started from a good level of support where the price reacted a number of times. However, the price breached and disobeyed the level twice. The trend started with a bearish pinbar followed by a bearish engulfing candle. The length of the trend is excellent and all the bearish candles look very solid without spikes.
Among these two charts, NZDJPY’s resistance looks stronger and USDJPY’s trend length looks better. Apart from these two differences rest of the attributes are very similar. Both are good charts and both of them are worth watching to look for selling opportunities. However, the trend’s length factor may attract more sellers to sell on USDJPY. Here are the reasons
Look at the last candle. A good looking bearish candle clearly suggests that it has full command over the market. The price may keep going down and then start having a correction or it may start having a correction right from the level where the price is at now. The potential resistance level is very clear here. Can you spot that out? Have a look here
The 1st Potential Resistance
The potential level of resistance may be where the last candle started. The price may go back there and make another downside breakout to offer a short entry. Here is a question. If the level is not held, but it is breached by the price what might be the next level of resistance. Have a look at the chart again.
The 2nd Potential Resistance
It is the level where the 2nd last candle started from.
With NZDJPY last two bearish candles did not have that good length to define these two correction/retracement levels. At the end of the day, on both charts, another breakout towards the South is the main factor. However, if the correction levels can be spotted out like that, and we get breakout towards the direction of the existent trend, it attracts more traders and brings more liquidity.
Attributes of a Good Chart
Here are some attributes of a good chart
- A good chart has to have a crystal clear trend.
- Support/Resistance, the previous trend has to be broken with a good commanding candle.
- Current trend should obey trend line, Equidistant Channel, Fibonacci Retracement Levels, Horizontal support/resistance etc.
- Candles in favor of the trend must not have long spikes.
- Trend’s length has to be long enough. The longer the better it is.