constantine_trading

How to read a Chart - Part II: Perspectives on Price I

Education
CME:BTC1!   Bitcoin CME Futures
What to look for

Introduction
As my previous post made unexpected waves within the community, I suppose you might be disappointed by this one ,
but you should still take your time reading this article and take some time thinking about it.
Moreover, you might wonder, why the first article has been about volume instead of price or the chart itself and now it seems like we’re taking a step back.
To come straight to the point, volume is playing a decisive role in the feasibility of reading a chart.
Price is secondary, hence it is more important to know how price and therefore structure is built by trading activity.

The Cute and the Ugly I
During my trading education at a hedge fund, we held daily sessions to present trading ideas and charts.
The aim was simple: taking screen time, understanding price (action) and getting used to what to look for from a blatant technical perspective.
Only when we found what we were looking for, we dove into further research (which will not be covered in this article).

By looking at the hourly and daily chart of the Zoom Inc. I am exemplifying “beauty” and “readability” by comparing the data feeds
of two stock exchanges: the Bolsa Mexicana de Valores ( BMV ) and the Chicago Board Options Exchange (BZX, former BATS).



As the dailies might only differ slightly, there are quite a few visible fissures.
Those are getting even more evident if viewed on a lower time frame like the hourly.
The chart from the BMV stock exchange is riddled, perforated, and a riddle per se consisting of gaps,
flat and overly large candles than on anything providing clear and straightforward information.
Long story short, you should always use the data from the stock exchange with the most traded volume ,
in general - not always - this ought to be the main stock exchange of the company’s country.
For assets like commodities , ForEx and similar, you should look at the futures’ charts whenever possible,
even - or especially - if you’re trading CFDs.

The Cute and the Ugly II
So now that you know which stock exchange to use the data from, how to choose a stock on a mere glance, rapidly, hundreds of stocks a day by manual screening?
To point this out, we’re having a look at the chart of the GameStop Corp.


Even though this stock was on everybody’s lips, the wicks and tails, the gaps, the (non-)existing patterns and the price action having formed this asset into a biest;
no hedge fund, no prop trading company neither a bank would take the risk on picking up positions, at least not on a short or mid term basis, not based on technical analysis .

In contrast to this, liquidity - and thus volume - is playing a key role in building price and structure
and consequent to this enhancing readability as you’re seeing in the chart of Crude Oil futures below.


What we've found
Now, you should slowly be able to see a chart and the price through the eyes of big investor, although you aren't one .
Big companies are not taking bets, not trading pink sheets for half a quarter cent;
they are stacking the odds in their favor by trying to avoid the unpredictable.

After reading this article, what would you prefer?
Making a small amount on a day-to-day basis or waiting years after years for the one chance to be rich in one shot?
As a colleague of mine once stated: As traders, we're positioning ourselves to make money continuously to then catch a bigger move.


___
Note:
As I’m writing a book about reading a chart,
I am going to post a couple of short articles on this topic and others related to it, e.g. trend, volume , Dow theory, auction theory and behaviorism.

If you are spotting some errors or if you like to add something, feel free to comment or pm.


Cheers,
Constantine -

p.s.: This article is not intended as any kind of trading advice.
I didn’t expect that my previous article made that much waves. Thanks to all for reading and I hope it will help you in your analysis and your trading career.
Thank you all for the interest in my book and to answer your questions: there is no release date yet as it is still a work in progress and it will be an educational novel.

Comments

Thanks for sharing another article with tips for reading charts! We're enjoying your writing. It's been featured in Editors' Picks.
100 coins
+6 Reply
@TradingView, thanks a lot!
Reply
On your Bitcoin CME futures chart is a forming H&S until it isn't. The gap could fill by measured target.
+1 Reply
@oe123, "is about to", "could".
This is article was not intended to display any patterns ;)
Maybe we can discuss this in the future.
Reply
oe123 constantine_trading
@constantine_trading, No time like the present to discuss the dynamics of chart reading. Enjoyed your post. I'll be watching to see how the pattern plays or does not play out.
Reply
@oe123, yes that's true. discussing is one thing, and the excitement of observation and unfolding another. Staying in the "now"-moment is the most important. If you're spotting something, let me know and we may exchange perspectives ;)
Reply
where were you a couple of years ago when i was losing a ton of money as a newbie. you nailed it. enjoyed reading this and appreciate you sharing. been doing this (with moderate to high success) for years now as a side hustle. hoping to go full time soon so always learning. I will be buying your book
+1 Reply
constantine_trading bigMACnDfRSIes
@bigMACnDfRSIes, thanks. I guess I was where I've always been: staring at screens :D
Reply
riskyrob bigMACnDfRSIes
@bigMACnDfRSIes, As a current noob, I'm happy that someone is showing "the way". Several friends that have been in the game giving me advice, well you know what they say about opinions. It will nice to be able to form my own based of what the charts are telling me.
Reply
@riskyrob, then take your (screen) time and good luck
Reply
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