3.05 Chart settings

In this lesson, we will focus on various aspects of chart settings that are key to successful technical analysis. Choosing the right time frames, intervals, and adjusting chart settings to suit individual analytical preferences can make a significant difference in interpreting market data and making trading decisions.

 

Time intervals: short-term vs. long-term analysis

Chart time intervals define the period over which each unit of time (e.g., candle, bar) represents specific market data. Depending on the trading strategy, traders can choose between short-term and long-term time frames (intervals). 

Short-term analysis focuses on immediate price movements, allowing quick reactions to market changes, while long-term analysis allows for the identification of more permanent trends and strategic investment planning.

In this section, we will take a look at the differences between short-term and long-term time intervals, their advantages, and their applications to various trading strategies.

Goal: To understand the importance of choosing the right time frame depending on the type of analysis and trading strategy.

 

Short-term analysis

Short-term analysis is the foundation of trading strategies focused on quick profits and dynamic market changes. Covering periods from a few minutes to a few days, short-term analysis allows traders to track immediate price movements and react quickly to market changes. This strategy is popular among day traders and scalpers, who aim to take advantage of small but frequent price fluctuations to make regular profits. 

In this section, we take a closer look at why short-term analysis is crucial for many traders, what tools and techniques are most commonly used, and what advantages and challenges are associated with such approaches.

Pros:

1. Quick trading decisions: Short-term timeframes allow rapid response to market changes.

2.  High volatility: Better use of market volatility to make quick profits.

Examples:

• Day trading:  Analysis of 1-minute, 5-minute or hourly charts, where traders open and close positions in a single day.

• Scalping: A strategy that involves making multiple trades throughout the day on very short time intervals.

 

Long-term analysis

Long-term analysis is a key component of investment strategies focused on identifying and capitalizing on sustainable market trends. Covering periods of several weeks to several years, long-term analysis allows investors to focus on major, more stable price movements and the fundamental value of assets. This analysis is particularly valuable for investors who prefer a "buy and hold" strategy, believing that markets tend to rise over the long term. 

In this section, we will discuss why long-term analysis is important, what tools and techniques are most commonly used, and what benefits and challenges are associated with this approach. This will provide a better understanding of how long-term analysis can support strategic investment planning and portfolio management.

Pros:

1. Trend stability: Better identification of major, long-term market trends.

2. Reduced impact of market noise: Focusing on larger, more significant price movements, eliminating short-term fluctuations.

Examples:

• Swing trading: Analysis of daily or weekly charts, where investors hold positions for several days to several weeks.

• Long-term investing: Analysis of monthly charts, in which traders keep their trading orders open for many months or years.

 

Choosing the right interval: matching the trading strategy

Choosing the right time interval is one of the most important elements of a successful technical analysis, as different time intervals can provide different perspectives and market scenarios and subsequently influence investment decisions. 

By matching an interval to your trading strategy, you can better understand price dynamics and optimize your entry and exit points. 

In this section, we will discuss how to choose the right time interval according to your chosen trading strategy to maximize profits and minimize risk. We will look at the different types of time intervals, their uses and the benefits of choosing them correctly in terms of making more informed and effective decisions.
 

Goal: To help you choose the right time interval for your trading strategy to optimize your investment decisions.

Short-term time intervals

Short-term intervals cover minutes or hours and are used in strategies that require quick reactions to price changes. The use of short-term intervals allows traders to accurately track price movements, identify immediate investment opportunities and make quick trading decisions.

Characteristics of short-term intervals

1. Minute intervals (1m, 5m, 15m):

   • Description: Minute intervals show price movements in very short intervals, allowing traders to track every minute price change.

   • Application: Ideal for scalping strategies in which traders make multiple trades throughout the day in an attempt to make money on small but frequent price movements.

   • Example: A scalper analyzing a 1-minute chart of Bitcoin can spot short-term fluctuations and quickly enter and exit a position to realize a profit.

2. Hourly intervals (1H, 4H):

   • Description: Interwały godzinowe przedstawiają zmiany cenowe w ciągu godziny, co pozwala na identyfikację bardziej średnioterminowych trendów w ciągu dnia.

   • Application: Hourly intervals depict price changes over the course of an hour, allowing the identification of medium-term trends throughout the day.

   • Example: A day trader analyzing a 1-hour chart of ETH can identify a head-and-shoulders formation suggesting a potential trend reversal and open a position in line with that signal.

Advantages of short-term intervals

Short-term time intervals offer traders unique opportunities that can significantly increase the effectiveness of their trading strategies. By analyzing minute or hourly price movements, traders can quickly identify investment opportunities, respond to dynamic market changes and maximize their profits. 

Short-term intervals are particularly useful in the context of day trading and scalping strategies, where fast speed and precision are crucial. Below we will discuss the main advantages of using short-term intervals, which attract many traders to this style of trading.

 

1. Accuracy:

   • Description: Short-term intervals allow accurate tracking of small price changes, which is crucial for strategies that require quick reactions.

   • Benefit: Traders can accurately observe and react to every price movement, minimizing the risk of loss and maximizing potential profits.

2. High Volatility:

   • Description: Cryptocurrency markets are often characterized by high volatility, which means many opportunities for profitable trades in the short term.

   • Benefit: Short-term intervals allow traders to make the most of market volatility to make quick profits. 

3. Quick identification of investment opportunities:

   • Description: Short-term intervals allow traders to quickly spot trading signals such as breakouts, reversals and price patterns.

   • Benefit: Quick identification and execution of trading opportunities can lead to more frequent and profitable trades.

Challenges in using short-term intervals 

While short-term intervals offer many advantages, they also come with a number of challenges that traders must overcome to successfully execute their trading strategies. The intense pace of trading on short intervals requires constant attention, quick decision-making and the ability to deal with high market volatility. In addition, frequent trading can generate high commission costs, and the risk of falling into market "noise" traps is much higher. In this section, we will look at the most important challenges faced by traders using short-term intervals and discuss how they can be effectively managed to increase their chances of success.

 

1. High levels of stress and attention required:

   • Description:Trading on short-term intervals requires constant concentration and quick decision-making, which can be stressful.

   • Example: A scalper trader must constantly monitor the charts and react to every price change.

2. High transaction fees:

   • Description: Frequent trading on short-term intervals is associated with higher commission costs and spreads.

   • Example: A trader who makes dozens of trades a day can incur significant commission costs, which reduces his profits.

3. Market noise:

   • Description: Short-term intervals are more susceptible to market "noise," that is, random and unpredictable price movements that can lead to false signals

   • Example: A trader using the 1-minute chart may see false breakout signals that do not reflect real market trends.

Summary

Short-term time intervals are an indispensable tool for traders who focus on quick profits from dynamic market changes. Their precise and fast-paced nature allows traders to effectively take advantage of market volatility, but requires a high level of attention, quick decision-making and effective management of transaction fees and stress. Understanding the advantages and challenges of short-term intervals allows traders to better adapt their strategies to market conditions and achieve their investment goals.

 

Long-term time intervals

Long-term intervals cover days, weeks or months and are used in strategies that focus on long-term trends and the fundamental value of assets. This allows investors to better understand stable market movements, avoiding the noise and fluctuations of the short term, allowing them to make more informed investment decisions.

Advantages of long-term intervals

Trend persistence:

Longer-term intervals allow the identification of more stable and sustainable market trends. By analyzing data over longer periods, investors can see a broader picture of price movements and better understand what forces are driving the market.

This allows investors to focus on major trends that are less susceptible to short-term fluctuations, which can lead to more predictable and stable investment results.

Example: An investor analyzing a weekly candlestick chart of an asset may notice a long-term upward trend that persists despite short-term corrections and fluctuations.

Lower volatility:

Long-term intervals eliminate the impact of short-term price fluctuations, which can be the result of random events or speculation.

This allows investors to better focus on the fundamentals of the market.

Example: By analyzing the monthly bitcoin chart, an investor can better understand long-term market cycles, ignoring short-term fluctuations caused by speculation.

Examples of long-term intervals

In long-term technical analysis, choosing the right time intervals is crucial to understanding major trends and market dynamics. Longer-term intervals, such as daily, weekly and monthly, allow traders to focus on more sustained price movements, eliminating short-term noise and fluctuations. Choosing the right time interval depends on your investment goals and trading strategy. 

 

In this section, we will introduce the three main types of long-term intervals: daily, weekly and monthly charts, discussing their use, advantages and examples of how they can be effectively used by traders to identify long-term market trends and make informed investment decisions.

Daily chart:

1. Description: The daily chart shows price changes over one day and is often used in swing trading and medium-term investment strategies.

2. Application: Swing traders can analyze daily charts to identify short-term trends and the timing of reversals, which can last from a few days to a few weeks.

3. Example: Swing traders analyzing Apple's daily chart may notice a head-and-shoulders formation, suggesting a potential trend reversal, and adjust their positions accordingly.

Weekly chart:

1. Description: The weekly chart shows the price changes during the week, which helps identify more long-term market trends.

2. Application: Long-term investors can use the weekly charts to identify major trends and key support and resistance levels, which is helpful in planning long-term investment strategies.

3. Example: Analysis of a weekly chart of an asset can help an investor identify a long-term uptrend, suggesting that now it is a good time to buy.

Monthly Chart:

1. Description: The monthly chart shows price changes over the month and is ideal for very long-term investing.

2. Application: Long-term investors, such as Bitcoin holders, can use monthly charts to identify long-term market cycles and trends that can last many years.

3. Example: By analyzing a monthly chart of an asset, an investor can see a multi-year upward trend that indicates the health, stability and development of the ecosystem behind the asset. 

Summary

Long-term time intervals are an invaluable tool for investors who focus on identifying stable, long-term trends and the fundamental value of assets. By eliminating market noise and short-term fluctuations, long-term analysis allows for a more thoughtful and strategic approach to investing. Whether an investor uses daily, weekly or monthly charts, long-term intervals offer a clear picture of the market, helping to make informed investment decisions.

 

Customizing chart settings to suit analytical preferences

Successful technical analysis requires not only the ability to interpret market data, but also the proper adaptation of analytical tools to a trader's individual preferences and trading style. Customizing chart settings allows for a clearer and more effective analysis, enabling you to better understand price movements and identify key market signals. 

In this section, we will discuss ways on how to personalize your chart settings, as well as introduce you to different chart types, scales and technical indicators that can be customized to meet your specific trading needs. As a result, you will be able to better customize your analytical tools to get more precise and clear results to support your investment decisions.
 

Goal: Understanding how to tailor chart settings to your own analytical preferences to increase the effectiveness and precision of technical analysis.

Types of chart settings

1. Chart type:

• Candlestick: Most commonly used in technical analysis due to the ease of interpreting price patterns.

• Bar: Used to analyze opening, closing, maximum and minimum prices.

• Line: Best for showing long-term trends based on closing prices.

2. Chart scale:

• Linear: Useful for short-term analysis, where absolute price changes are more important.

• Logarithmic: Ideal for long-term analysis, as it better reflects percentage price changes

3. Technical indicators:

• Moving averages (MA): Used to smooth out price movements and identify trends.

• Momentum indicators (RSI, MACD): They help identify the strength and direction of the trend and potential turning points.

 

Personalizing the look of the chart

Personalizing the look of the chart is a key element of a technical analysis that can significantly improve the readability and interpretation of market data. Customizing various visual aspects of the chart to suit individual analytical preferences allows traders to better understand price movements and identify key trading signals more quickly. Below we will discuss some important elements of personalizing the look of a chart.

1. Candle and post colors

The colors of the candles and bars on the price charts help to distinguish more quickly between price increases and decreases, which is particularly useful in technical analysis.

Application:

• Rises: Green or white candles/bars mean that the closing price is higher than the opening price, indicating an increase.

• Falls: Red or black candles/bars mean that the closing price is lower than the opening price, indicating a decline.

Example: Set the colors of the candles to green for increases and red for decreases. In this way, looking at the chart, you will quickly identify in which periods the price was rising and in which it was falling, making it easier to analyze trends.

2. Grids and auxiliary lines

Grids and auxiliary lines help to accurately track price levels, which is important for identifying support and resistance levels and accurately drawing trend lines.

Application:

• Grids: They make it easier to compare different price levels on the chart by adding horizontal and vertical lines at regular intervals.

• Auxiliary lines: They help pinpoint key price levels and trendlines, which supports more accurate technical analysis.

Example: Turn on grids on the chart to help you see the price levels. Set soft colors for the auxiliary lines so that they are visible but do not distract from the main price data.

3. Personalization of chart types

The choice of the appropriate chart type depends on the investor's analytical preferences and the type of analysis he wants to perform.

Application:

• Candlestick: Popular for their ability to depict four key price points (opening, closing, maximum and minimum) and price patterns.

• Bar: Similar to candlesticks, but less visually intuitive; they also show opening, closing, maximum and minimum prices.

• Line: Used mainly to identify long-term trends, showing only closing prices.

Example: If you want to analyze candlestick patterns, choose a candlestick chart. For a general understanding of the long-term trend, a line chart may be more appropriate.

4. Personalization of chart scales

The scale of the chart can be linear or logarithmic, depending on the type of analysis and investor preference.

Application:

• Linear scale: Used for short-term analysis, where absolute price changes are more important.

• Logarithmic scale: Used for long-term analysis because it better represents percentage price changes.

Example: For long-term analysis of stocks that have experienced large increases, a logarithmic scale will work better. On the other hand, for short-term analysis, it is better to use a linear scale.

5. Timeline personalization

The timeline on the chart can be adjusted to show different periods, which helps tailor the analysis to a specific time frame.

Application:

• Short-term: Settings for minutes or hours for day-trading or scalping strategies.

• Long-term: Days, weeks or months for swing trading or long-term investing.

Example: If you are a day trader, set the timeline to 1-minute intervals. If you are a long-term trader, set the timeline to weekly or monthly intervals to better analyze long-term trends.

6. Personalization of technical indicators

Adding relevant technical indicators can significantly improve the ability to identify trends and turning points in the market.

Application:

• Moving averages (MA): Add different moving averages to identify major trends.

• RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence): Add these indicators to monitor trend strength and potential turning points.

Example:Add the 50-day and 200-day moving averages to the chart to monitor major trends. Use RSI to identify overbought and oversold moments and MACD to track buy and sell signals.

7. Drawing tools

Drawing tools allow traders to visually mark important levels and formations on charts, enhancing the interpretation of market data.

Application:

• Trend lines: They allow drawing lines connecting support and resistance points, which helps identify trends.

• Pricing channels: They help identify trading range and lateral movements.

• Fibonacci levels: Used to identify potential turning points based on Fibonacci percentage levels.

• Rectangles and ellipses: They are used to mark areas of consolidation or price patterns.

Example: On the chart, add trend lines connecting successive higher lows and higher peaks to identify an upward trend. Use the Fibonacci levels drawing tool to determine potential support and resistance levels after a strong price movement.

8. Notifications and alerts

Setting up notifications and alerts on the trading platform allows traders to track and react to specific market conditions in real time.

Application:

• Price alerts: Set alerts to notify the trader when the price reaches a certain level.

• Indicator Alerts: Set notifications based on technical indicators such as RSI or MACD when they reach certain values.

• Volume alerts: Inform the investor of changes in the volume of transactions, which can signal significant market movements.

Example: Set a price alert to be notified when the price of bitcoin reaches a specific price level of interest. Also add an indicator alert to be notified when the RSI exceeds the 70 level, suggesting an overbought market. You can also set a volume alert to notify you when there is a significant increase in volume, which may indicate an upcoming price move.

Summary

Customizing chart settings is key to conducting effective technical analysis. Choosing the right time frames, intervals, and personalizing charts to individual analytical preferences can significantly affect the interpretation of market data and trading decisions. Practical application of these settings allows traders to better understand markets, identify key support and resistance levels and optimize their trading strategies.