How to Read Charts and Build a Strategy (A Complete Guide) This is how to build A strategy. We will dive deep into all of these concepts in the net lessons. Candlesticks A Candle Stick is Defined by an Open, High, Low, and Close The body of the Candle is the Open and Close. The wick is the high or the low. A Sell Candle Opens at the top and closes at the bottom because the price is going downward. A Buy candle Opens at the bottom and closes at the top Candlesticks represent data. The data that candlesticks represent, is what price did in a certain period. Each candlestick is a representation of multiple smaller Candlesticks, Example 1 Day Candle → six 4-hour candles → twenty-four 1-hour candles Another way to look at this 1h, is a group of four 15-minute candles, 15-minute candle, is 3 5-minute candles. The point I am trying to make is that Every candlestick has groups of smaller candlesticks inside of it I recommend you change the colors to something that is not green and red, to give you more emotional control and logical decision-making skills when looking at the charts. Time Frames A time frame is the setting that allows you to change how much time each candle represents This is important because things might look good on a 5m time frame, but there may be a larger pattern at play A mistake beginners make is to start with small time frames and move up. You have to start with large time frames and move down, this is called a Top-Down analysis Time frames are useful because they show us what the price has done and the overall movement of the market Highs and Lows A high or low is formed by two candles that signal the bottom or the top, of what price did during a certain period of time. I say two candles because if it was just one candle, and the price went past that candle it would not be a high anymore, the two candles confirm that it was a high because the price went down after, or vice versa, with a low. The Psychology of Price Liquidity Liquidity: This just means how easy it is to buy or sell stocks without affecting their price too much. When there's a lot of liquidity, it means lots of stocks can be bought or sold easily. Large Banks: These are big players in the stock market. They buy and sell huge amounts of stocks. Liquidity Pools: These are areas where there are lots of buy or sell orders already waiting. It's like a busy marketplace where lots of trading is ready to happen. What Large Banks Do: These big players look for liquidity pools because they can make large trades there without changing the stock prices too much. They prefer it because it's easier and less costly for them. Impact on Stock Prices: When these large banks aim for these liquidity pools, they can push stock prices towards them. It's because their big trades can influence the market. Benefits of Understanding Liquidity Areas: Better Entry and Exit Points: Knowing where these busy spots are helps traders decide when to jump into or out of a trade. It's like choosing the best time to cross the street when it's not too crowded. Following the Big Players: Large banks and institutions often trade in these busy areas. By watching these spots, traders can try to follow the moves of these big players, which might lead to making smarter trades. Avoiding Price Slippage: Price slippage happens when you get a different price than you expected when you make a trade. By focusing on areas with a lot of trading activity, traders can often buy or sell their stocks closer to the price they want. Losses from Not Understanding Liquidity Areas: Poor Timing: Without knowing where the busy spots are, a trader might try to make a trade at a bad time, like trying to cross the street during rush hour, which could lead to getting stuck or not getting the price they wanted. Missing Out on Big Moves: If a trader doesn't know where the big banks are trading, they might miss out on following these significant moves. It's like not knowing which road leads to the big event everyone is going to. Higher Costs: Not understanding liquidity can lead to higher costs because of price slippage. This means a trader could end up paying more or selling for less than they planned. Liquidity grabs, or sweeps A liquidity Grab is when the price moves towards a zone of liquidity fills the orders and then moves back down. This often surprises new traders, because they don't understand why the price is moving so fast. We can predict and anticipate liqduity grabs by understanding where they might be on the chart. Trends A trend is the market moving in a certain direction during a select period of time An "uptrend" is when the stock price is generally going up over time. In an uptrend, the stock makes "higher highs" (peaks that are higher than the previous peaks) and "higher lows" (valleys that are higher than the previous valleys). This pattern shows that buyers are more eager and willing to buy at higher prices, pushing the price up. A "downtrend" is the opposite, with "lower lows" and "lower highs," showing that sellers are in control and pushing the price down. A strategy A strategy is a set of actions you will take when a certain set of rules are met. You can use anything we talked about in this video to create your strategy, but here is mine Mark out previous areas of liquidity, Highs, Lows, Trends, and Session Opens. Create a prediction on the reaction that price will have to these areas based on what it has done in the past, and the other areas around it. Use other areas of liquidity to make targets, and stop losses. Remember, Trends are also areas of liquidity, so trends can be one of these areas. Create a place where you will exit if the trade goes right, and where it goes wrong. A plan A plan is a set of rules you follow every day, no matter what How many trades will you take? What time will you trade? What percent of your account will you risk? How much will you lose before you stop trading? How will you set aside time where its just you, and the charts?
