Professional traders use charts to determine when to enter and exit markets. Chart patterns provide the trader with structure, a means to consistently identify and manage trading setups.

Charts map the price movement of the underlying commodity. They can be in any time frame, one minute, one hour, daily, weekly or monthly. There are a number of different ways of representing price data, but the most useful format is the candlestick chart. This chart shows one line per time period indicating the price at the start of the period, the price at the end of the period, the lowest price in the period and the highest price in the period.

Here is a 2-minute candlestick chart showing price movement in the first two hours of a session in the Russell 2000 e-mini futures contract.

Charting Example

Each vertical bar on this chart represents price movement during a 2 minute period. Candlestick charts typically have a body between the opening and closing prices, with a tail up to the highest price and a tail down to the lowest point. By convention the body is a thick line and the tails are thin lines. The colour of the body indicates the overall price movement during the period. In this case, blue is up and red is down.

During the first two minutes (the first bar on the chart), price opens at 784.9 (the top of the body) and closes at 784.4 (the bottom of the body). The highest price during the two minute period is 785.3 and the lowest price is 783.8.

Price continues to decline in the second period, opening at 784.4 and closing at 783.2. The highest point in this second period is 784.5 and the lowest point is 783.2 (the same as the closing price).

Before becoming a day trader you should be entirely comfortable with charts. It is worth buying a charting text book at your local bookstore.

Good quality real-time, intra-day charts are generally available from your broker, either free of charge or at a low monthly fee.

Comments are closed.