Scalping, swing trading, intraday trading and day trading are just a few of the names for different trading styles and I have found market structure is equally important for all trading styles.
Analysis of the market structure is a vital piece of information for traders to anticipate the likely direction of the market. It is a foundation block to trading, however the time period in which the analysis is carried out is likely to vary for different trading styles.
As a forex trader my analysis would include the 4 hour, 1 hour and 5 minute charts.
Consideration points would be is the market consolidating (ranging) or trending? What are previous support and resistance levels and what if any patterns are evident in the chart? My aim is the gather the important information needed to anticipate the market directions and identify potential trading opportunities together with trading targets or expected levels for market moves, and the timing of the momentum necessary for these moves.
A day trader in stocks or options would look at longer time frames, focusing on the weekly and daily charts to anticipate the movements in the market. Professional traders know that markets trend less than 30% of the time and chart patterns together with volume are important considerations.
Many books have been written about chart patterns and a good starting point to understanding what chart patterns are telling us about is found on the website chartpatterns.com.
Today I looked at the EURUSD forex pair to see how the pennant pattern was developing so I will add a copy of this chart which does contain some of the support and resistance lines and the ADX indicator of momentum.
Happy trading in February …..let me know your results for the month.