Charts are not enough

Nearly every trader today uses charts to make trading decisions, and by now practically everyone knows how to identify a breakout, measure overbought and oversold conditions, and recite the names of different candlestick patterns. In fact, chart reading is getting harder all the time because there is rarely a clear consensus among signals. Most of the time, they are mixed. The proliferation of chart reading techniques and the resulting contradictory readings may be a key reason time frames have shrunk from days to hours (along with the typically low capital stake). You may be confused about what a chart is saying about next week, but you feel confident about what it’s telling you will happen over the next few minutes.

While you may be successful trading the super-short intraday time frame, you are vulnerable to making costly mistakes if you do not have the big-picture context in which to judge a move. Trading is nerve wracking even when you know you will be exiting the trade very quickly; the potential for getting stopped out with a loss is high.

Instead of spending more time refining chart indicators, consider that the first “indicator” — the news that causes the price to make a decisive move — isn’t on the chart at all. Many traders don’t have the time or the inclination to follow the news, but this is often the easiest way to see a setup coming. After all, indicators were devised to measure market sentiment, but usually you can go directly to market sentiment itself. Then, if the chart confirms what the fundamentals are saying, your trade has an added chance of being right.