From the AHG training course comes this very simple idea to basically write down almost bar by bar one’s thoughts on a chart.
I came up with the term “chart story” when I was working with beginning traders. When we think in these terms, we imagine that every aspect of every bar is important, and we try to understand the part every tiny detail plays in the developing story of the market. (We must acknowledge right away that this line of thinking is misleading because it does not respect the random variation in the market. Its value is only as a training tool to help build solid habits in chartreading.) This is one way to look at and to think about price charts, and it lays a solid foundation for developing market feel down the road.
This is an exercise that is designed to do a few specific things:
• To force you to slow down and to look at the details of the charts
• To get you to start thinking about the forces that might be behind the price formations
• To start thinking about emotional context in extreme situations
• To show you a handful of important historic moments in financial markets. (Not every chart in this sector is designed to that end; some are simply illustrations of interesting patterns.)
• To begin to awaken some sense of intuition and inductive learning.
For the purpose of this exercise, assume that every bar has a story; your job is to tell that story. Rather than worrying about being right or wrong, focus on the thought process and inductive nature of this analysis. There
really are no wrong answers here, and you may even find value in doing these exercises more than once. Finding interesting examples on your own would be another way to extend the analysis.
If the chart has text, answer the question or do the specific analysis on the chart. If there is no text, then write a separate explanation for each labeled bar—in all cases, make sure that each bar designated with a label receives your attention and a text explanation.
Adequate explanations will usually be 2-6 sentences long and will focus on concepts such as:
• The position of the open and close within the day’s range
• The position of the open and close relative to each other
• The range of the bar relative to previous bars
• Consider each bar both alone and in relation to previous bars
• Any “surprises” (This is a deliberately large category.)
• Action around any obvious support and resistance levels. (This is not an exercise in support and resistance, so do not focus on this aspect.)
• It may be useful to think it terms of large groups of buyers and sellers driving the market, and the battle between those groups.