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Reading Charts Like a Second Language

Patterns Recognition

How to train yourself to recognize patterns like a pro

In these articles, we talk a lot about trading as a well crafted skill. How it takes tireless practice and constant adjustments to become a consistently successful trader. The learning never ends and the push for perfection is always on.

One of the most important components to a winning portfolio is learning to read charts fluently. The ability to recognize patterns as the emerge and form is an invaluable tool to conquering the otherwise unpredictable market. Training your brain to spot patterns and quickly act on them is essential.

Developing your Natural Instinct

The art of physics Amazing 😳

The art of physicsAmazing 😳

Posted by Imagina on Friday, April 12, 2019

Seasoned analysts who have poured over massive amounts of data have a refined and matured ability to recognize things in charts. If you’re just starting out, you need to consider that this takes time. It’s like learning a new language. In the beginning it’s very confusing but over time it becomes more natural and instinctual.

Being Fast Versus Being Good

Of course, when we talk about instinct, we don’t mean that eventually you’ll just look at a pattern and know what to do. Pattern recognition means you can identify the pattern. What you do with it next is still a matter of work.

Even if you can recognize charts quickly, it’s important to distinguish between good and bad setups. There isn’t much benefit to reading charts fluently if you can’t separate the quality from the garbage.

However, this doesn’t mean you should take a lot of time looking for one pattern. Too much time laboring over one pattern could mean you miss what else is out there. The sweet spot is spending enough time on recognition and action while not too much that you miss what’s coming.

Persistent and Consistent Analysis

Keep your workflow and variables consistent in order to make sure there aren’t unaccounted variations in your analysis. For example, changes in screen resolution, zoom level, chart width, indicator space, and chart software can have a big effect on the reliability and consistency of your chart reads.

Here are a few things which can really hurt our ability to read charts fluently:

Chart Orientation

This might sound like a no brainer, but the simple setup of charts can have serious impact on the way we read them. For example, traders looking at several charts on one screen, vertically or horizontally, are severely limited in their ability to see the whole picture.

For vertical viewers, the display is distorted because price will be scaled to fit the available space.

For horizontal viewers, the split will make the trend seem smaller while magnifying ranges.

If you can have two or more screens, great but it’s not required. With some disciplined organization, it’s possible to see all you need on one screen. Use chart profiles, watchlists, trading plans, and alerts in order to stay aware of the big picture.

Choosing the Right Platform

This one is familiar to any trader who’s given multiple platforms a try. From one service to the next, charts can look quite different. Identify a charting platform and trading platform that works for you. If the charting platform shows a sign, it’s not necessary to compare it to the trading platform. There may be differences in the chart and it could cause you to hesitate and miss out on the trade. If it looks good in your charting platform, it’s ok to go ahead and make the trade in your trading platform.

Seeing Different Signals

The world we live in is constructed in part on our collective agreement of what certain colors mean. When we drive, we all agree that red indicates that we should stop, while green tells us we can go.

In order to avoid our preconceived feelings towards certain colors, be conscious of how you construct your chart. If a certain color invokes feelings that have nothing to do with trading or your analysis, avoid that color. If need be, don’t use colors at all.

Switching between bar charts and candlesticks can also mess with your reading ability. Changing between the two will take time so make sure you don’t confuse yourself by alternating the way you assemble your charts.

Improving Your Fluency

As we said at the top, learning how to read charts well is a skill that takes time and practice to acquire. If you’re at the beginning of your journey, here are three tips to help you strengthen this skill:

  1. Review screenshots before every trading session. Go through your past work and see what worked and what didn’t work. Keep reminding yourself of what a great setup looks like and how to consistently achieve it.
  2. Make a checklist for every trading session. Before you dive in to the days work, go over everything that you need with a physical checklist. Put it next to the monitor so you can’t miss it. Don’t start trading until you’ve marked off all of the necessary elements. Double check it if you have to but stick with it every time you trade.
  3. Practice and drill every day. Go over your routine all the time. Constantly drill yourself so that you can most of your trading routine in your sleep. Work your butt off until seeing patterns is as natural as anything else you do consistently in your life. And then keep working.

Photo by Mario Gogh

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