How to Know When Price Bar Reading Doesn’t Work - dummies

How to Know When Price Bar Reading Doesn’t Work

Reading bar charts isn’t always a clear-cut process. In bar terms, a trend has two identifiers — a series of higher highs (or lower lows) and a series of up days (or down days). Sometimes, you just can’t get any useful information from reading price bar series, regardless of how much knowledge you have of trends.

Some price series are simply unreadable. You can’t figure out what the market is thinking because the market is changing its mind just about every other day. This figure illustrates such a chart. The series of gray up days is a minor uptrend and the following series of black down days is a minor downtrend — but then things fall apart. You see higher highs followed by lower lows and no consistency in the placement of the close (up day or down day).


When you find yourself looking at a price bar trend like the one in this figure, don’t do anything — at least, not anything based on interpretation of the bars. When bars are in a chaotic mess, the probability of picking the right direction (up or down) is very low. You’d just be guessing. And, although you have to accept imperfection and a certain amount of ambiguity in bar-chart analysis, the whole purpose of technical analysis is to obtain a higher probability of making the right decision. Guessing defeats the purpose.