How to Read Chart

Hello, I am Oleg Alexandrov, Market Analyst. I do market research for private clients, trade on my own account, and provide daily market overviews for the Tradunity.com project.

In this thread, I will share my approach How to Read the Charts as a book.

What is Chart Reading

This is reading the Story of the neverending battle between buyers and sellers. By analyzing price & volume relationship, Chart Reader extracts the latest data of balance between Demand and Supply. Thus, he becomes capable to understand the Current Character of the market. Playing in harmony with the Market Character - this is the way to decrease risk and increase profits.

Warning. The main goal of the Market is to make as many fools as possible. Bernard Baruch.

So:

 

1. when majority expect pump - market dumps
2. when majority expect dump - market pumps

If you want to know the real reason for market moves - study who lose the money.
Focus on the Causes, trade Effect. Chart Never Lies.

Thanks for your interest.

Used Acronyms

1. ND — No Demand; NDW, or ND-Wave — No Demand Wave
2. DB — Demand Bar; DW, or D-wave — Demand Wave
3. SB — Supply Bar; SW, or S-wave — Supply Wave
4. NS — No Supply; NSW, or NS-wave — No Supply Wave
5. SLK — Stop Loss Killer; SLKT — SLK at the Top (bearish sign), SLKB — SLK at the bottom (bullish sign)
6. EVR — Effort versus Result; EVRW — EVR wave; EVRT — EVR at the Top, EVRB — EVR at the bottom
7. SOS — Sign of Strength
8. SOW — Sign of Weakness
9. ZOS — Zone of Strength
10. ZOW — Zone of Weakness
11. SFDB — Support from Demand Bar
12. RFSB — Resistance from Supply Bar
13. TF - TimeFrame (period)
14. Cha Cha - Change in Character

I have never ever heard the real truth as regards to market action on television or in newspapers. As a trader, you will find you are constantly mislead by lies, roomers, misinformation. So on the basis of this information arriving on your doorstep will give you and thousands of other traders a completely wrong feel as to the markets real intent.

Believe me, the markets move on the shifts of large blocks of professional money, tipping the balance of supply and demand one way or another, which to the trained observer you can read.

Supply and Demand
We have all heard the pundits in the money section of our news programs telling us that this market or that market, has gone up, down or sideways, for some specific reason or another.

The price of oil has gone up and the stock market has fallen. - for example.

Of course, at another time the price of oil will rise and the stock market will rise too - but nobody ever seems willing to explain this apparent dichotomy. The simple truth is that nobody really knows why news may have caused the markets to move in one direction or another. News doesn't actually drive the markets, it follows it.

Prices are driven by supply and demand. When demand is strong and supply is limited prices rise. When demand is weak, or supply is excessive, prices will head lower. If demand is strong and the news is, bad prices may still move lower, but the market will react less strongly than if the demand had been weak or there was too much supply. The market may even rise despite the worst possible news.

The key to trading successfully is to determine the balance of supply and demand in the market.

Many good traders have a sense of this without even trying, there are 'natural' traders who always seem to be on the right side of the market, but if you are not able to do this instinctively you can learn to do it through Chart Reading Method? And you will be amazed at how much you will learn in a short time.

Have you ever seen that massive bad news come to the public at the market bottoms? And the best optimistic news bombards public heads at the market tops. So, better not to read the news, read the chart. It has the language that can be translated into the opinion. This is the way of judging the market's character by its own behavior.

#BAC #stock chart reading. The part of the market cycle

#Gold Overview. Mixed Data from 3 Sources.

Fake (or False) breakout is one of the most tricky things in trading. This is how the market (professional side) make fools (losses for retail traders). The number of Fake Breakouts increase at the psycho levels (round numbers). Look at 1550 blue line. We had very clear breakout divided into 2 parts:

1) Evening of 04 Sept (Blue arrow). Everything looks bullish, but look at the response

2) Red Arrows point at price falling amid an increase in volume. This is genuine Supply activity after Non-professional bulls were trapped above 1550. (Check the history - you will find Minor Trap Up-moves before Major Break Down in the 90% of cases, even on news events).

On the following days we got Stop-Loss-Killing above 1525 level (circled) and the test of center line of the upward channel.

Well, what is next? Actually, market is quite balanced. We have support from bottom line of up-trend channel with Demand Surge (green line) on the background. But if the bulls are really strong, we should see some sort of quick bounce from the line of support. Instead, price is chilling around 1500.

Intraday clusters (see additional chart) show the attempt of bulls to drive price up (after Trap for bears). But this bullish attempt can be quickly exhausted with mentioned signs of weakness above 1520. So, short-term outlook is neutral.

Stock chart reading

Example #1



The average trader can see here Head and Shoulder's pattern. What does see Chart reader? Up-Waves with exhausting of Bull's power.

1) The first up-wave collects 574k of Volume
2) The second up-wave collects 301k of Volume
3) The third up-wave collects 243k of Volume

The Volume on up-wave diminishes. It means the Exhausting of Demand Power. As a result we got "P" formation on the profile. What is the inner working? 1st up wave attracted FOMO buyers who wished to follow the rise of price. Professional traders use the FOMO surge in order to establish shorts. Study the clusters. If the busy trading activity above 219.30 does represent the real strength, market should pump. But it did trade in the range. So, "P" profile is the hidden Weakness.

And the appearance of Sellers (arrow 4) is a moment when retail bulls found themselves in bad positions. The appearance of Supply after No-Demand sign - is a signal to short. This is a way to trade in harmony with market.


Example #2

Here is another intraday 5m cluster chart (or footprint) of #AAPL #stock.



The described principles below are valid for other markets/TF. Just think how people lose money - and charts become more full of sense.


1) market forms minor low. People tend to "hide" their SLs under low such this. Minute by minute, the number of SLs are growing there. When market "see" the number is big enough, it...
2) ..drop right there. This is an SLK - stop-loss-killing action.

3) And one more shot to kill more SLs.


4) Here is Demand wave: a) green clusters b) strong close c) breaking resistance. Plot SFDB on this level. Market should find support around 2019.80-219.90.
5) Supported.


6) This is a Trap for bears. Not very obvious. But study the price action. It was several bars of decline. Indicators encountered people and bots to sell. But what we got soon?
7) Demand bar. This DB was powered by SFDB level.


Market closed at 220.70. Just imagine the emotions of buyers who were knocked out from positions at points 2 and 3.


From the short-term picture, market is bullish while price is trading above 220.10-220.20.

Is the current VETUSD (crypto) strong?
Well, technically we have a balance A-B, It was broken up by the surge of demand (point 1). Moreover, price is holding above SFDB line (point 2).
But personally I am skeptic about current rally. Look at the bottom. We have green-red indicator. It represents the balance between Bids and Asks. If those bids are fake? What if they can be withdrawn in one moment? If those bids are real, why is price moving so slowly in an upward direction? The high A was gained easier?
So, we have buying signals on this chart (for example testing SFDB line), but personally I do not feel the confidence to follow them. New high above A - looks as the SLKT Trap.

Yesterday I wrote about my skepticism related to VETUSD market. Actually, it made a step down as other Alt-Cryptos.
This post is dedicated to EVRt sign. I pick ETCUSD market to outline this sign in better details.




Study the behavior of price /volume when the market did reach blue circle level. Think about the volume as the quantity of effort. And measure the result on the price axis. You can make a suggestion - bulls have spent a lot of efforts to push the market higher, but they did gain small progress. Market profile forms a shape of "P" letter. And how can the inner working be described? Professional traders put a lot of SELL-Limit orders above high A. That is why we have big volume and a small bullish result. This is a sign of EVRT (a sign of weakness).


Note the following response.

a) Price formed short term balancing wedge (blue lines)
b) Bearish movement - price decline amid rising volume (red lines).

This change in character confirms the weakness in EVRT wave.

What is next?
1) Huge volume down-bar could be interpreted as the attempt of market to shake out weak holders (hidden strength)
2) Price broke up in the upward direction from the balancing wedge (confirmation of strength).
3) Plot the SFDB around at the breakout level. While the price is holding above SFDB - intraday traders have the arguments to play in the bullish team.

Setup for shorting

Every market is moving within neverending cycle: ...balanced -> unblanaced -> balanced -> unblanaced -> balanced -> unblanaced -> ...
Balanced markets cover 80% of time. Trending markets last 20%.

It is hard to understand, but many cycles are developing at the same time on different timeframes. Learn more in Peter Steidlmayer original materials.

The zones of balances can be detected on chart as they form the triangle shape. The zones of unbalance forms trending movements (pumps and dumps).

Here is a pair if the #BTC chart.



On the top side - 30m bars, it shows the triangles of balances. The goal of a trader is to find low-risk opportunities. Where do they hide? Think from the point of view of market balances. From my point of view - the rational answer is:

sell at the top line (resistance) of the new balance after the previous balance was broken down
buy at the bottom line (support) of the new balance after the previous balance was broken up


On the bottom side - clusters tick chart. It shows the details and confirmation to open the trade. A lot of green clusters - minor buying culmination. Some sellers are knocking out amid triggering their SLs. Some buyers enter breakout longs. Soon, they both will find they made a mistake. This is your setup for shorting.

OK, let's do update. I use Bitfinex clusters, UTC time.

First of all, what is the context? Price has been moving inside balancing triangle/wedge AB for several days. (Note, it entered the wedge after falling - this fact increases odds for a bearish escape from balancing wedge - this concept often discussed in classical TA).

Second fact - SLKT above 8300. I pointed attention on this Killing of SLs of sellers (and trap for bulls) in Tradunity Main Telegram Chat (see screenshot).





So, we had the more weakness on background - this is context. What we had next?



1) Supply wave
2) Supply wave culminated in for of Panic at the level of line B (bottom/support level of balancing wedge).
3) Yes, this is EVRB (small progress for bears)
4) NS (lowering of volume on the level where Panic+EVRB were detected)
5) With a minor sequence of Strength (Panic+EVRB+NS), Bulls tried to push market higher.
6) But their power exhausted quickly. This is No Demand (low volume attempt to go up caused by a lack of buyers). Note, ND appeared just at 50% half way back of decline from SLKT 8350 to Panic 7950
7) SB (I'd like to see higher volume) and confirmation of ND. Bearish Cha Cha. Chart tells you market changed its sentiment. Holding longs became very risky as buyers were not ready to push market above 28/09 SLKT.

What's next?

8) An attempt of bears to break down big AB wedge. Volume was extremely high.
9) This bar tells that bearish attempted was about to fail. Because a lot of activity of this bar was registered above the body of minor balance CD. This is bullish sign and chart tells that bar #8 is likely to be a Big Trap for bears with killing SLs under 26/Sept low.

So, as #BTCUSD is trading above 7900, I expect an attempt to breakout line A.

On the post about oil (in Tradunity Telegram Channel) I wrote about setup "Test of RFSB".

Actually, Let me outline more details about Test_Of_RFSB setup using a fresh example on the same market.



The first chart is telling the global view (1 candle = 1500 ticks). You can see on chart #1:
1) the breaking down of line A.
2) consolidation zone after break-down of A
3) development of the Selling Wave with big bearish effort around 59.40. Plot RFSB here.

The idea behind the testing RFSB - is to knock out bears who joined the selling wave from good positions. Test means that -> the market makes back move up in order to trigger SLs of bears placed around the breakeven level. As you can see on the profile, we had a spike of activity at 59.40 level. So, point #4 - is the "test" of RFSB and knocking out sellers from a falling market.

Now, look at chart #2. This is footprint (1 candle = 144 ticks). We need to find the best moment to open a short position.



1) Abnormal Buying during testing of RFSB on faster TF. Green Clusters = Many Existing Shorts are Stopping-Out. Market Fooled that Sellers. Thereby, it lost its interest to go further up.
2) That is why selling pressure appears (Pure Genuine Supply). Price starts to decline amid the red Delta = bearish behavior.

A period of transition from 1 to 2 = the rational moment to enter shorts with applying your personal Capital Management Rules.

In the last overview about #BTC market (posted 2 days ago), I wrote:

.. as #BTCUSD is trading above 7900, I expect an attempt to breakout line A.

Since that time, price increased from 7900 to 8200. Let's do update.



1) After break-out of line A...
2) ...price did advance up to 8400. Study carefully the character of up-wave in point 2. It consists of 3 up-bars. Every next up-bar has bigger volume than the previous bar. And every next bar has smaller bullish progress in comparison with the previous up-bar. This is EVRT - big Effort Versus small Result. EVRT tells about Supply swamping Demand. Sellers activated above 8400.
3) This is SLKT - stop-loss killer at the Top. It: a) knocks out sellers who placed their SLs above the high of Point 2 and b) involves bulls in buying. This is pure manipulation. That is why you can see...
4) ... fast decline after SLKT pump bar. The chart tells, market is not interesting in holding above 8400 figure.
5) SLKB brings some bullish impulse to market. But it seems, buyers will not capable to develop a powerful pump and breakout 8400 resistance.

IMO, negative sentiments are growing again

Intraday Bullish Change in #BTCUSD market.



Violet Line - is major line of support. It can be clearly visualized on TF like 1h-4h.
Now study the behavior of the Price/Volume on down-waves 1-2-3
1) Panic Volume + Wide Fearful Spread (attracting the public to sell)
2) Big Volume + Small result for bears (only SLKB actually).
3) No supply wave. Very little volume on the decline.
4) Demand Bar
5) Small NS bar
6) Another DB.

In sum, we got PANIC+SLKB+NS+DB+NS+DB. After first NS+DB holding shorts became risky as the market demonstrated exhausting of selling pressure on 1-2-3 waves. That gives an idea that the Support line will be unbroken (for a while).

When public bulls look market goes up #1, they go long and place SL under the low of #A.
Then SL-killer comes in #B.

When public bulls look market goes up #2, they go long and place SL under the low of #B.
Then SL-killer comes in #C.

This is a cruel character in every market. Only a business.
Note a spike of volume on clusters. This is knocking out sellers.

If you really want to join the bullish team, cluster #3 could be a signal for you. Buying here has arguments:
1) cruel market lost interest in going lower because it has triggered many SLs of buyers already
2) M5 profiles show the growing POC - it confirms the interest to go higher.

Hope it was useful

Today I wrote in the Tradunity Telegram Chat:
ZRX broke above previous major high. I believe in Correction. The progress of wave A was quickly nulled.
Actually, as you see in hindsight, it was a clear manipulation:

 

1. FOMO wave has extremely size of volume. Extremely high volume on up-bars = hidden weakness.
2. SLKT above the #FOMO waves – additional Trap of smaller scale (intraday size)

So, the current trading range is developing in the format of the #distribution stage. That is why I do believe, #ZRX #cryptocurrency has negative sentiments

Example of Judging the #Bitmex #XBTUSD Market Action using the Price and Buying/Selling Volume

We Have 3 downwaves A-B-C. All downwaves were finished around 8475.
1) Study the Profile of Each wave - They have "b" Shape.
2) Study the Selling Volume - We have a lot of Spikes in red Delta and Red Clusters around 8475.

So, we got signs of hidden strength around 8475. It seems that Professionals Accumulated the falling flow of coins using Buy-Limits.

Study the wave D. Here where Strength turned Real. We have breakout above the resistance line.

So, Bulls are producing big efforts to push market up from 8475 level. If they fail, this level will act as resistance.

OK, this all great. But how you can trade this situation?

Turning delta from red to green (circled blue) around SFDB green line - is a rational setup to join the bullish campaign.

In my previous overview about #Gold, I wrote this maket did trading in the range of balance between 1500-1520 levels. As a result, we got the formation of a big "bell shape" in market profile (left side indicator).

Yesterday, we got the first clue about future direction with the breaking of minor blue support line.
1) Selling of pressure to break down the minor blue support line

At the opening of today's session, chart confirmed the market's intention.
2) Trap for bulls at the opening of the session (I use data from Moscow exchange, futures section). Green clusters represent: a) buyers are entering Trap b) sellers are knocking out from good positions
3) Another portion of genuine Supply (Selling Pressure).

So, Buying Culmination + EVRT on 03/Oct revealed its power - the Market broke down 1500 level. It should act as resistance. Sentiments are negative. Next week should produce the development of decline. Breaking out above 1500 with the bullish style will invalidate the bearish course.

The wide green up-bar (the third from right edge) was a test or fresh minor zone of Weakness after the second SLKB.

Studying the volume/price action on fast TF chart (right side) confirms the Supply on slow TF has activated. This Supply comes from old High (line A). So, the down-move toward center-line B (dotted line) should be a reliable expectation.

Here is a wave analysis using Demand & Supply Principles.
I use #oil futures market from Moscow exchange.



We have 2 waves
1) This is the first wave, It has volume 1.35m contracts and 3.4% progress
2) The second wave gained 1.7% progress with a bit higher volume 1.42m

Buyers "spent" more efforts (seen by volume) but with fewer gains (result). Chart tells us - this is a zone of resistance (supply). So, we were warned about a possible decline.

3) As a consequence of Weak action on Friday, Monday has opened with a big gap down.
4) Note how the buying volume decreases on tiny up-wave. This is No-Demand.
5) Genuine Supply pressure

While price holds below RFSB level (black line) - the situation is bearish.

On the left side you see 3d #gold chart, a lot of volume arrived on up-bars in the first half of August. Too much volume on up-bars - is a sign of Hidden Weakness as professional money get an opportunity to close big blocks of longs and spread gold contracts over the buying rush of FOMO public (retail traders). Ths spike in Google trends data confirms the FOMO sentiments. So, if the get the first sign of major distribution range, then what the bearish responses?

1) price can not bounce up from line B and drop to line C.
2) we have a red zone of weakness, it has built from the big Supply Bar.

3) study the profile of up-wave in the first half of October. It has a shape of "P". Bearish indication.

4) Price declined below the POC level of up-wave in the first half of October. Bearish indication.

Takin into account considered facts, I believe if gold will break down line C, it will reach D.