In day trading, charting is everything. To be an effective technical trader you must be able to setup and use charts effectively.
Charts are the trader’s eyes into the financial markets. There are millions of data points and massive amounts of information that go into producing the price movement that we see in the financial markets. How we see that data will determine our next moves and whether or not we can successfully trade any financial instrument. Whether you use candlesticks, lines, or some variation of monkey bars (yes, there is such a thing), your effectiveness will be determined by how well you can tune into the market and get a pulse on what is happening.
Effective charting breaks down into three fundamental components.
One, charts must be simple.
Charting does not have to be complicated to be useful. As a matter fact, too much information can be harmful. I suggest traders use no more than 5 indicators per chart. More indicators mean more signals but this does not always translate into more money.
Two, charts must be exact.
Ask a specific question and set your charts to give you a specific answer. If your trading strategy centers on short-term, breakout plays, then your charts must reflect that with smaller time frames and indicators that can help track momentum.
Three, charts must be comfortable.
Ultimately the charts are there to help you make the best decision possible with your money. Traders should be comfortable with the charting software they utilize and gain familiarity with navigating and manipulating charts as they see fit. What good is a great chart if you cannot use it?
View this video on how to setup charts on the ThinkorSwim platform. We’d love to hear from you. What are some of the “must haves” you include in your chart setup?