💥Technical analysts consider charts as essential tools for generating profits. Therefore, before delving into the process of reading charts and identifying various patterns, it is crucial to understand the fundamental principles of chart creation. 💥By grasping the basics of chart creation, analysts can interpret price movements accurately and effectively. This understanding lays the foundation for recognizing patterns and making informed trading decisions. 💥So, before exploring the intricacies of chart patterns, it is essential to familiarize oneself with the principles underlying chart construction. This knowledge empowers analysts to navigate the charts with confidence and derive meaningful insights from the price data presented. candlestick-chart.png 💥You may have come across a technical analysis chart, which consists of multiple horizontal bars intersecting each other. These bars vary in size, representing statistical information about price movements over a specific period. Each bar corresponds to a time period, such as a day, and is referred to as a \"bar\" in technical analysis. Hence, this type of chart is commonly known as a Bar Chart. 💥The length of each bar is determined by the trading range, i.e., the difference between the highest and lowest prices during that period. A long bar indicates a significant price swing, suggesting a highly active market on that day. Conversely, a day with minimal price movement results in a shorter bar. In cases where the price remains constant throughout the day (or there is only one trade), the bar appears as a single point since the highest and lowest prices are the same. 💥The closing price is denoted by a small notch on the right-hand side of the bar. It helps us determine whether the closing price is closer to the day\u0027s high or low. Additionally, the opening price is represented by a protrusion on the left-hand side of the bar. This visual arrangement allows us to compare the opening and closing prices easily. By observing the information contained within these bars, we can gain valuable insights, which are more accessible than examining raw data. When these bars are organized by trading days, we obtain a Bar Chart that provides even more comprehensive information for analysis. 💥Creating a bar chart is an essential step in technical analysis as it provides valuable information and insights into the price movement of a security over a specific period. Here are some key reasons highlighting the importance of bar charts in technical analysis: 👉1. Price Visualization: Bar charts visually represent price data, allowing traders and analysts to observe the historical price movements of a security. They provide a clear and concise way to understand price trends, patterns, and changes over time. 👉2. Time-Series Analysis: Bar charts display the price data in a sequential manner, showing the opening, closing, high, and low prices for each time period (e.g., day, week, month). This sequential arrangement enables the analysis of price behavior and the identification of trends, reversals, and patterns. 👉3. Price Patterns: Bar charts help identify various price patterns, such as trendlines, support and resistance levels, chart patterns (e.g., head and shoulders, double tops/bottoms), and candlestick patterns. These patterns provide insights into potential future price movements and assist in making informed trading decisions. 👉4. Volume Analysis: Bar charts often incorporate volume data alongside price data. Volume represents the number of shares or contracts traded during a given period. By analyzing volume patterns alongside price movements, traders can assess the strength or weakness of a trend and determine the level of market participation or investor interest. 👉5. Technical Indicators: Bar charts serve as the foundation for many technical indicators used in technical analysis, such as moving averages, oscillators, and momentum indicators. These indicators rely on the historical price data provided by bar charts to generate signals and help traders identify potential entry and exit points. 👉6. Timeframe Analysis: Bar charts can be constructed using various timeframes, such as minutes, hours, days, or weeks. This flexibility allows traders to analyze price movements at different levels, from short-term intraday trading to longer-term trend analysis. 👉7. Historical Comparison: Bar charts enable the comparison of current price levels and patterns with historical data. By studying past price behavior and market reactions, traders can gain insights into how similar patterns or levels have influenced price movements in the past and make educated predictions about future price action. 💥💥In summary, creating a bar chart is crucial in technical analysis as it provides a visual representation of price data, helps identify patterns and trends, incorporates volume analysis, serves as a basis for technical indicators, allows for timeframe analysis, and facilitates historical comparisons. These insights assist traders and analysts in making informed decisions and formulating effective trading strategies.
Earlier in the articles, we considered such mechanisms used in trading as Stop-Loss and Take Profit. Of course, these two tools help reduce the risk and increase the profitability of the strategy. But what if, because of them, we limit ourselves to getting more profit? To understand how this can be done, you need to consider Pyramiding. What is pyramiding - оne of the types of strategy aimed at increasing capital by step-by-step opening of several transactions with a favorable trend. Using this strategy allows the trader to get a stable income. Let\u0027s consider the principle of pyramiding. The essence of pyramiding is that after the profitable result of the last transaction, the trader opens a new position, while doubling the bid, compared to the previous one. As for the risk arising from the next bid, it is equal to the sum of the profit of the previous stage and the initial bid. At the same time, the amount of profit depends on the so-called \"steps\" of pyramiding, and it grows exponentially. Buy-order-pirammiding.png Pyramiding is applicable in any market – stock, currency, and others. The trader adds a new position to the previous effective one, if the trend direction is profitable for him. If the trader\u0027s actions are calculated correctly, he will always be in profit. The use of various trading robots also contributes to a more convenient use of pyramiding. For example, \"Mr. Hyde\" from StockSharp, which in automatic mode and flexible configuration can trade in pyramiding mode. An important point is that the trader must be sure that the trend is stable, otherwise it can lead to losses. However, the use of automated programs, such as Designer, which use condition cubes and position protection, makes trading with pyramiding minimally risky. An example of this strategy is shown below. stop-loss-strategy.png Let\u0027s consider the basic rules of pyramiding. - Constantly monitor the ratio of return and risk within 1 to 2, so that the previous yield can cover the current risk. - All parameters used during trading must be calculated in advance before entering the market. - Use pyramiding only on a stable trend. Let\u0027s look at an example of using pyramiding. Let the trader have a capital of $10,000. At each main level, it can buy 10,000 units of the selected currency. In the Forex market, this is 1 mini lot. The amount of profit at each stage will differ, however, the size of the set Stop-Loss for each opened transaction will be equal to 50 points. So, the trader buys 10,000 units of the base currency. Let\u0027s assume that the market situation is shown in the figure. stop-loss-order-transfer.png The price rises and breaks through the resistance level, now this level becomes the support level. Let a bullish pin bar be formed at the support level (a graphical analysis figure based on the non-indicator method of trading, as well as the analysis of Price Action charts), in consequence of which the trader decides to buy 10,000 units of currency. When a trade is opened, the trader sets the Stop-Loss at 50 points or 1% of the risk of capital. This way the trend keeps its direction, and the trader trades further. The trend breaks the next level, and the price is set above the support level, and the trader buys another 10,000 units, and the previous Stop-Loss is transferred to the new level. The same situation is when the price breaks the third level Thus, the trader accumulates a long position of 30,000 units of the main currency by the third stage. There is almost no risk, since at the third stage, when a deal is concluded for 10,000 units, the profit will be 4% if the trend reverses. The potential profit, with a successful outcome, can be 12%. Let\u0027s look at this example in numbers. stop-loss-order-trade.png It is important to see how the possible profit increases from each stage to the next, while reducing the risk The trader\u0027s first trade will bring him a profit of 6% of the initial capital. Consider all the situations in the market: - First transaction: 10,000 units Negative: there was a -1% loss Positive result: +6% in profit - Second transaction: 10,000 units Negative result: no loss (+2%in profit from the first stage and -1% in loss from the second) Positive result: +10% in profit (+6% in profit from the first stage and +4% in profit from the second) - Third transaction: 10,000 units Negative result: +4% in profit (+3%in profit from the first stage, +2% in profit from the second stage and -1% in loss from the third) Positive result: +12% in profit (+6% in profit from the first stage, +4% in profit from the second stage and +2% in profit from the third) As you can see, the risk is about 1%, while with positive trading of all three stages, the profit will be 12% Main advantages and disadvantages of building: Plus: - Pyramiding strategy allows you to increase your income with minimal risk; Minus: - The strategy is quite complex and requires experience. It is possible to use the strategy for medium or long periods of time, preferably using automated trading systems. The correct calculation of the exit point from pyramiding, analysis and testing of the trend behavior is of great importance, which necessarily leads to the use of trading robots. Pyramiding is not suitable for scalping strategies, and is also aimed at long-term trading. Pyramiding is a profitable and relatively safe method of trading. Its reliability has a downside in the duration of the process, the accumulation of sufficient experience and knowledge in trading that would correctly calculate the levels of trade. Also, this type of trading is not suitable for all traders, so choosing it as the main one should be conscious.