A Basic framework of the Trade Charting (TC) Technical Analysis System
1. Outline of my Technical Analysis TC System:
The Trade Charting (TC) system is a technical analysis system that uses a range of indicators to generate trade entry signals. Indicators used include EMAs the ADX but the most significant indicator in the TC system is the TC Trigger. In 2017 I had the TC Trigger coded for Meta trader. Please refer to this link for information about how I use this Indicator. In 2018 I had the same part of my TC system coded for Trading View; please refer to this link for more information about this application. Unfortunately, Australian legal restrictions prevent me from sharing the TC indicator.
A common criticism of technical analysis that uses indicators is that they are 'lagging'. I am quite happy to catch just part of a strong market move once it is in place though. I am aware that I will miss the first and, probably, last section of a strong trend or move; but catching regular 'slices' out of the middle section of strong moves is just fine with me.
One major advantage of the TC technical analysis trading system is that it only requires the humble technology of a simple laptop! That is all I use in my trading. Thus, I can apply my analysis and trade from anywhere and at any time. Traders simply need to manage their time to be able to access charts on the preferred candle update times.
Trade Charting involves technical analysis and potential trades are evaluated by checking charts for the alignment of several indicators and, then, waiting for these to attain specific and optimum levels. When these levels have been reached on ALL of the indicators then a valid Trade Charting signal is determined to have been received. My Trade Charting system is, thus, very visual and takes only moments to assess on any trading instrument (Forex, Stocks, ETFs Futures etc) and, on any time frame.
The Trade Charting system is, therefore, quite mechanical. That is, it does not require a great deal of decision making. The charts are evaluated on whatever time frame you trade and there will either be a TC signal or not. Mechanical systems like this offer an advantage in that they take out much of the anxiety and / or guess work about whether to place a trade or not.
2: Time frame of trading:
Forex: The Trade Charting technical analysis system with Forex can be applied to any time frame chart.
Commodities / Indices/ Futures: The TC system works well on commodities such as Gold, Silver, and Oil and on the stock indices such as the S&P500 and the Dow. The preference for these instruments is to use the 30', 15' or 5' charts during the US session. TC can be applied to stocks, Futures and ETFs too, in fact, it can be applied to any trading instrument that can be charted!
Stocks: Trade Charting can be applied to stocks on any time frame but my preference is to focus on two major time frames: the daily / weekly chart time frame and the 15 min chart time frame. The longer-term, weekly/daily chart analysis is useful for swing and position traders or traders who are time poor. The shorter term time frame is more suited to active day traders.
3: Risk Management:
Risk management is one of, if not the most, important part of any trading strategy. This has become a particular focus for Tradecharting with the development of the TC Trigger and the focus on shorter term time-frame trading. Risk management for Tradecharting is addressed in a number of ways including:
- Risk per trade: Tradecharting endorses strict money management rules with a 2 % maximum of account risk per trade for Forex and 5% for stocks. This will often mean that traders have to be selective with the TC signals that can be traded.
- Trade correlation: Tradecharting supports trading one signal per currency at a time. For example, if TC signals were given on the AUD/USD and AUD/JPY then only of these would be taken because these pairs are highly correlated and thus the Risk, by taking both signals, would be double. With stocks, if TC signals presented on numerous Gold stocks for example then trades to a maximum risk of 5% in the Gold sector would be advised as the performance for each stock may end up being highly correlated.
- Volatility: Tradecharting advises that only TC signals that trigger out of low volatility markets should be taken as these offer the greatest risk to reward potential.
Some charts will present, at times, with extra chart patterns confirming a particular trend direction. This may take the form of Support and or Resistance trend line levels or triangle patterns etc. This is referred to as Confluence when you have 2 or more factors that support a trend direction on a given pair. For example, a currency pair may generate a TC signal but, also, have just broken out of a triangle trading pattern or broken a significant trend line. So, I would always choose to trade the currency pair that has extra confluence over a pair that may only have the raw TS signal.
5: Support and Resistance:
I would be cautious about taking a TC signal that was just under a major support or resistance level. This is an important concept that I have written about more fully here.
6. Summary of how I apply my Trade Charting system:
- Determine the overall currency market trend using the indices USDX and EURX.
- Check a Trading Calendar at the start of each week, and day, for significant items. (http://www.forexfactory.com/calendar.php)
- Analyse charts and note key Support and Resistance levels.
- Analyse charts and look for any congestion patterns.
- Apply Fibonacci retracement to chart patterns to help identify potential profit targets.
- Monitor charts, on the time-frame chart that best suits your trading plan, for any trend line breakout.
- Determine the Risk to Reward potential for each potential trade. Use Fibonacci levels to help identify profit targets.
- Trade with the trend and trade what you see, NOT, what you think.
- Monitor market commentary sites to keep abreast of news and announcements.
Please feel free to ask me questions. Send these to: firstname.lastname@example.org.
NB: Please, also, read the Disclaimer Information on this blog. Only ever trade with funds that are allocated as part of your 'risk trading' account. Do not start to trade with a Live Account until you have demonstrated consistent success in a simulated practice account.