Context

There are many ways to trade. It is not essential which trading method we choose as long as it works for us.

My method comes under the general name of ‘Price Action.’ Simply, this requires the ability to read raw chart information on all timeframes. Here’s a couple of charts: can you tell the timeframe?

Snip20151027_7

Snip20151027_8

The top chart is a daily candlestick chart of Gold, and the bottom chart is a 15-minute candlestick chart of Silver. The point is that it is not possible to see a difference in these charts without the timeframe on the bottom. Price Action works similarly for all timelines.

It is good, however, to ground ourselves on a specific timeframe and use only the neighbouring timelines for clarification. For instance, if I were to use a daily chart to find a trade, then I may venture to a weekly chart for guidance and possibly to the 4-hour, or even 1-hour chart, for final confirmation. But probably no lower. Equally, if I were trading from a 5-minute chart, then the 30-minute or as low as the 1-minute chart may provide some price clarification.

On another point, the distinctive parts of Price Action are: firstly, knowing the meaning behind each of the candlesticks. Yes, they individually tell a story and the higher the timeframe the more defined is the story. Secondly, and more importantly, is the need for context – that is the story that is told by a stream of candlesticks. We may take a trade based purely on context, but we would never make a deal based only on the distinction of a single candlestick. Too many trading methods and seminars find their teachings primarily on the story a unique candlestick tells, where the real ability is in reading the stream, the context.

Published by Day Trader

I flew fast jets for 30 years of my life. I've traded full-time, more or less, for the last ten years, initially from fundamentals and over the last few years as a dedicated day trader. I live on the North Norfolk coast.

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