hello. i have recently decided to start paper trading but i do not have a solid system in place. i plan to try trading with naked charts and follow dennis’ strong and weak analysis. is this a bad idea. is it too risky. thank you. appreciate all your help.
Yes naked charts are good, the more simple the better. If you start trowing things at the chart it will only confuse you more.
1 Like
Nearly naked. Off-chart indicators are for experts. But many traders use consistently one or two MA’s to confirm and illustrate trend.
1 Like
I think you are missing the point behind Technical Analysis of price movements - but don’t worry, most newcomers do!
New traders tend to take ownership of various terms and phrases and then start to quote them to others as though they were rocks of wisdom. And the sexier the term the better it is and the wider it is bandied around - without much thought as to what it really means.
Naked charts is one of these terms. All a naked chart means is that you are eye-balling a plain graphic presentation of current and historic price movements. But, just like any other form of chart presentation, it tells you nothing of where price will be going next. Whatever form of charting you use, you are using previous, historical data to project the most probable direction forward from the present.
If you are using naked charts you are basically developing a skill in visually recognising key developments in previous price movements and applying future projections based on historically typical reactions at such points.
But this is not easy, and the shorter the timeframe the harder it becomes and the greater the number of failures.
But this is the very reason why Technical Analysis developed in the first place. Whether one is talking of Price Action or Indicators, the original aim of TA was to assist in clarifying what is the core underlying state of price movement. This covered far more than just direction. TA techniques were ever increasingly developed to help identify entries, trends, ranges, momentum strength, exhaustion points, typical retracements, and so on and on and on and on!
Eventually we reached the stage where, with computing power, we try to even exclude the human element and let the TA do it all for us.
But the key point that seems to become lost amongst all the thousands of TA alternative tools and applications is that TA was intended to assist us in our analysis and decision making and not to replace it. It is a job aid.
So if you feel you are able to determine a) what is the most likely future direction, b) where is a suitable level to enter and c) when is the appropriate time/level to exit, with just a naked chart then that is fine. But if this alone is not accurate enough for you then you can start to consider a) what you need to help you analyse these issues better and b) what TA approaches/tools can best assist you to improve in these specific areas.
It is this systematic process of developing a strategy that best suits your personal circumstances and pyschology that forms the learning period in forex trading. Not the typical “it will take you 5 years” predictions that are so often thrown around, even if you keep repeating the same things.
It does take time to develop and implement and gain the experience, patience and discipline to trade consistently. But in order to convert that consistency into profitability also requires development of a sound risk/money management strategy layered (and implemented!) over the top of your trading strategy.
But be prepared for the fact that whatever your method, it will not work all the time. For example, here is an extract from GU 4H chart:
What would naked PA or indeed most indicators be telling you about what comes next?
Would you be a buyer? at what level? where would be your stop/target?
SO what came next?
This:
But if we perform multi timeframe analysis and look at this on the daily chart, it looks a little different and that drop does in fact only suggest a good entry level:
But is this a cosy little uptrend? or what is to be expected?
If we look back further on the daily chart then we see that we are in fact in a very big downtrend!!!
So that original 4H view of an “uptrend” that ended with a disastrous collapse on the following 4H candle is now looking more like a reversal back into the prevailing downtrend - except the channel trendline on the daily was indicating that "but maybe not yet"…:
…and so the picture builds. The charts are showing the terrain, but a few TA “aids” are helping to show the routing and, just as important, the timing…
4 Likes
nice post , totally agree , Off -chart not appropriate for the general traders. its for only professional traders,
1 Like
this did not appear on my notifications so apologies for not being able to immediately thank you for your very informative response. i learned a lot from it. you are very helpful. thanks mate. appreciate it.