{"id":3559,"date":"2020-05-25T15:10:43","date_gmt":"2020-05-25T07:10:43","guid":{"rendered":"https:\/\/www.investagrams.com\/daily\/?p=3559"},"modified":"2020-05-25T15:25:21","modified_gmt":"2020-05-25T07:25:21","slug":"read-between-the-lines-a-silent-guide-to-interpreting-charts","status":"publish","type":"post","link":"https:\/\/www.investagrams.com\/daily\/2020\/05\/read-between-the-lines-a-silent-guide-to-interpreting-charts\/","title":{"rendered":"Read Between the Lines: A Silent Guide to Interpreting Charts"},"content":{"rendered":"

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As a newbie who wants to delve into trading the financial markets, whenever we do a quick search on the Internet about trading, most of the time, you will encounter charts involving mostly candlesticks.<\/p>\n

If you\u2019re that trader who\u2019s struggling with reading candlestick charts because of the \u201cnoise\u201d it eventually generates causing you to overthink your executions or worse, FOMO, and you wanted an alternative to reading those price charts, then you might want to continue reading. We are going to talk about one of the most underrated views that you can use at your disposal – line charts!<\/strong><\/p>\n

Have you ever wondered what kind of charts analysts use on CNBC? If you try to watch some videos on the web then yes, they mostly use line charts (or some of you might argue mountain charts, but technically they still use lines).<\/em><\/p>\n

If you\u2019re going to transition from candlesticks to lines, you may need to detach your emotions when looking at candlesticks. But if you\u2019re a newbie and this is the first time you\u2019ve read about lines, then great, you can read this coming from an empty cup.<\/p>\n

As with any other trading tool, there are advantages and disadvantages of using this chart view so let\u2019s carefully take a look at them.<\/p>\n

Clearer supports and resistances<\/strong><\/h3>\n

The struggle I had during my early stages of trading was actually plotting supports and resistances. If you\u2019ve been following me in the early stages of my trading journey, I used to utilize the Donchian Channels indicator to spot supports and resistances. So here\u2019s an example of its usage with a period length of 10:<\/p>\n

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However, the problem with using this is that it might also give false levels causing you to create too many psychological levels inside your head.<\/p>\n

Now let\u2019s see when we view this chart using lines:<\/p>\n

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That\u2019s better, and cleaner too!<\/p>\n

Looking at the last examples will entirely depend on your visual preference. But with enough practice, you will get used to this.<\/p>\n

It\u2019s also easier to draw Fibonacci Retracements as well which brings us to the next advantage of using lines and MY NUMBER ONE REASON<\/strong> why I prefer using this view over candlesticks.<\/p>\n

Lines can serve as your secret weapon for Elliott Waves<\/strong><\/h3>\n

What are Elliott Waves? I\u2019m not going to delve in too much on the topic since I know that there are contributors better than me who can explain more on detail but I will give you an idea on what it looks like just by looking at this illustration:<\/p>\n

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Source: babypips<\/a><\/em><\/p>\n

Don\u2019t get me wrong, I know a lot of awesome Elliotticians like Limitless Investor and Javi Medina who use candlestick charts on drawing Elliott Waves – and yes! I actually tried drawing those waves using the candlestick charts but guess what? It was a real headache for me!<\/p>\n

In the brink of giving up on waves, a short conversation between me and Roy Lacsamana last InvestaSummit 2019 completely changed my approach to charts and it can be summarized in this statement:<\/p>\n

\u201cYou should try Elliott Waves since you\u2019re a musician, it suits you.\u201d<\/strong><\/p><\/blockquote>\n

And I can\u2019t believe he was right! After weeks of figuring out why I was struggling, eventually, I found the reason why I was personally having a hard time understanding the waves – I was looking at the wrong view!<\/p>\n

To put this into perspective, let\u2019s reverse engineer an Elliottician\u2019s chart from Limitless Investor, let\u2019s say you have this example:<\/p>\n

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Since this is how I learned to understand Elliott Waves by reading other people\u2019s charts, here is my perspective on his Elliott count using my custom retracement:<\/p>\n

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If you compare the two charts, it\u2019s the same view – we\u2019re just using different lenses.<\/p>\n

Lines provide pure price action<\/strong><\/h3>\n

So far I\u2019ve only found both a pro and a con of using lines – it only gives the closing price. It sounds ironic when you think about it since the goal of the lines is to minimize the noise that you see in the charts, especially for those traders who started with candlestick charts.<\/p>\n

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Bounce and breakout plays can somewhat frighten you as a trader if you rely purely on lines. One way to remedy this is to look at lower time frames to verify if an area is a support or resistance, but we\u2019ll save that for another post.<\/p>\n

Or you can just quickly switch to candlesticks and observe if the last candle shows signs of strength or weakness.<\/p>\n

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And yes, big and sharp moves created by lines can also give you hints of gaps when you switch to candlesticks.<\/p>\n

If you are planning to transition to lines or a newbie and you feel like there\u2019s still \u201csomething missing\u201d in the charts, there\u2019s actually an indicator that can help you deal with this problem and we will talk about it in the next section.<\/p>\n

A Parabolic SAR can be your trusty sidekick as well as your \u201calternate candle high\u201d<\/strong><\/h3>\n

Have you ever got into a dilemma wherein you had a good entry but for some reason, you\u2019ve created these psychological barriers that prevent you from holding or taking profits?<\/p>\n

This is actually the reason why I got rid of A LOT<\/strong> of moving averages and stuck to only ONE<\/strong> moving average – the 200-period<\/strong> moving average.<\/p>\n

The Parabolic SAR (Stop And Reverse\/PSAR) can serve as an alternate indicator for the rest of the commonly used moving averages (20, 50, 100) and the signal is pretty straightforward to understand:<\/p>\n