Introduction

This article will continue the "Trading Abc" series, going through a deeper analysis of what is a chart, how price flow is represented on different timeframes and how to consider a timeframe compared to another which are some basilar points I need to focus on before going through the main aspect regarding supply and demand and market behaviors.

If you are interested, here below the list of previous parts:
Charts

Everytime we look at a chart, what we see is the graphical representation of the consensus price for a given instrument over a specific period of time. This is done by a software elaborating all data and drawing a line for every new tick, so for example this is how the GBP / USD chart looks like:


In this case the chart represents all ticks coming in 20 minutes from 14:00 to 14:20, and they are connected each-other by a line so to simplify and make the visualization more readable by human eye. There are other ways to visualize the same price changes over a period, and the most commonly used is the candlestick chart, where every candle is a representation of all tick data over a specific frame of time. Let's say for example we want to see a candle representing where price was on every 1 minute starting from 14:00 to 14:20, this is what the chart will look like:


The only difference is on how price changes are represented: in a candlestick chart we can quick recognize all open - high - low - close for each 1 minute, but the flow is the same than a tick chart with price going down from a 1.22 to 1.2180. The concept is extremely simple indeed, but you will find people telling that a timeframe is better than another because of a large variety of reasons, but the truth is that there is no difference between a timeframe and another, other than just a personal and subjective feeling. Not sure? Look at this next picture:


Price moves in GBP / USD on last friday (21st October) from 8:00 to daily close, represented in a 15minutes timeframe, showing price going down from a level, bouncing and coming back up. Now look at this next picture:


Do you really see any difference, other than how tick data are compressed? Every chart represents the same thing: all ticks on a specific instrument over a frame of time.

During the early days of my learning process, I met people telling a timeframe is better than another, or that daily timeframe is better than a 1 minute, and again people telling it is not possible to make money trading over a 1m chart... the list could be very long indeed! Truth is always the same: a lot of people don't know what they are saying because they either don't know what they are doing or they just want to find consensus of their beliefs in other people.

Price

In all these examples what is really notable on every picture is that price flows and moves up - down creating various kind of patterns giving many opportunities for profitable trades. In order to truly see these opportunities one has to start with a clean mindset and avoid overthinking. Let's analyze these price moves watching a 1 minute candlestick chart:


At the European opening, market built a support to reach daily open area, where met resistance to move back down to support and breake it. After that, there was a (failed) attempt to reconquer the support, and after a clear breakout pattern, market heavily sold the instrument. That is: if you were biased on looking for buy opportunities there were at least a couple for about 10 pips while on the sell side there were larger and better defined setups.

Moving forward in time, the situation changed a bit. Let's see the picture:


Price did not continue to the down side, and market decided was time to buy, breaking short - term consensus area and moving up. In these moves there were great opportunities for both buy and sell sides, with price moving between intraday levels, giving 10 to 15 pips moves.

What is really notable from this example, is that in just few hours we find a lot of strong price patterns and trade opportunities that could develop even on a 1 hour or a daily chart but that will require a lot of patience and a larger portion of risk involved: we have to always keep in mind that we could be wrong, isn't it?

Conclusion

What people consider as "fast timeframe" are the best one to learn how to trade, how to recognize a pattern, what are the possible mistakes and what are the best opportunites to get and those to avoid: a wrong trade on a tight range will cost tight pips, while a misinterpretation on a daily chart could cost even 200 - 400 pips.

In this article I already introduced the concept of supply - demand which comes intentionally express "between the lines", and better exposed in next publication, so keep in touch.
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