If you are new to the financial market, learning how to read trading charts is the first thing you need to do. Online trading charts provide all necessary insights about the price movement, trading volume, and other crucial issues that ensure a deeper asset overview.
If you are new to quote pages, you may read a detailed guide on how to read online trading charts in our comprehensive knowledgebase. In this article, we will try to figure out why two traders can read the chart differently.
Learning to Read Price Action
A trading chart is all about price action and trading volume. It uses various Forex indicators to let traders understand what is going to happen within the given timeframe. The reason why two traders read the same info differently is mainly the lack of discipline.
Some people simply cannot give up risking too much when trading even a minor lot. Such an approach turns upside down the vision of what the market is doing and how the price is changing. The core problem here is that one can actually learn what discipline is. But no one can ever force a trader to stay disciplined, especially when it comes to day-to-day trading.
What we can do is figure out the main problems that influence a trader's ability to read Forex charts and quote papers. At least, you will know how to avoid an emotionally-charged eye and read the charts calmly and reasonably.
The idea lies behind the bias of position or no position. In other words, when a trader enters the market with a bias, he or she will never be able to read trading charts properly. This is one of the most common obstacles among both experienced and novice traders.
Example: let's say, you are sure that EUR will disappear from the market in the next 10 years. If so, you are likely to consider the EUR/USD currency pair with bias, which means a negative approach under most of the market conditions.
What you need to clearly understand, is that the financial market does not care about what you think or believe in. It moves around influenced by specific rules and actions that have nothing in common with your personal delusions. And online trading charts are here to help you figure out those moves.
What's more, both positive or negative bias usually skews a trader's decisions. The only way to overcome this obstacle is to let it go. Remember, even if EUR will hit the bottom and drop down to 0, we may still expect multiple bounces in the nearest future.
Addiction to Timeframes
Addiction to trading timeframes is another common stumbling block that prevents traders from reading charts properly. It is all about day trading. If you are a scalper, you will care where AUD is when trading it against EUR or USD in the next couple of seconds. On the other hand, swing traders crave longer info support that can sometimes vary from weeks to months. This is where they start facing problems.
The longer timeframes you stick to, the more different focus you have on a position size if compared to those who go short. As a result, swing traders and scalpers will read the same trading chart in a different way. Whatever you do, keep in mind that even a 100 pip stop loss is tiny and hopeless, especially in the big scheme.
Poor Technical Analysis
Poor or bad technical analysis is a common problem for amateurs who underestimate the role of trading fundamentals. For some traders, grasping analysis is the same as trying to figure out Einstein's theory of special relativity. The lack of knowledge does not let them see the same things a well-prepared trader is able to see.
Example: if you do not understand technical analysis properly, you will mainly focus on the trend. This will result in lost support and resistance as well as average lines and other indicators that are also of great importance. As a result, having good trading knowledge and experience is vital to read the charts correctly.
Imagine a room with 10 traders using the same methodology. You would be surprised to know that half of them will come up with different counts and results. Opting for the right method is crucial. The choice will depend on the indicators and chart elements you are mainly focused on. If you tend to consider support and resistance more, the methodology will be different from that used by traders who focus on average lines.
Example: traders, focused on support and resistance, do not really are about the wave count. For this reason, they will hardly want to use the Elliott Wave method and vice versa. It does not matter what kind of methodology you implement. It will never provide 100% correct data. Each method can let you make money. Just make sure you know how to use it.
Fundamental or Technical Analysis
Some traders are focused on fundamentals while others rely more on technical analysis. It is another reason why two people read the same chart differently. If you pay 90% of your attention to the price action, you will read the quote differently from those who mainly consider fundamentals.
The key difference here is that fundamentals do not have the same impact on the price action, although they still affect it in some way. Whatever it will be, technical analysis works more with scalpers and short-term traders while long-term investors rely more on the fundamentals.
The Bottom Line
Millions of reasons influence traders who can read the same chart differently. They are not only about skills, experience, or knowledge. It is all about data interpretation and the ability to adapt it to the current market conditions.
A simple lack of attention can result in critical mistakes as well as a lack of discipline and focus. What you need to avoid is emotional trading and the inability to understand the basics of technical analysis.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.