The Art of Charts

Disclaimer: If you do any of the things I’m about to shit on and make a profit from it, muzzeltof to you, keep going. However, my commentary is my opinion and is presented as such.

Doesn’t Forex look boring to an outsider? There’s no way to make a set of quotes or chart sexy. In fact, when it comes to Forex and numbers the only thing that’s going to look sexy is that P/L sheet being green (or in MT4 Mobile’s case, blue for some reason). Hardly artistic.

You can certainly blind people by dumping a bunch of indicators on your account and calling it a science though.

I need a PhD in Bullshit to understand this bollocks

Even Picasso’s paintings make more sense than some systems. Things start to get a bit confusing when you have more than 4 or 5 indicators on-screen, let alone multiple indicators that straddle the same types.

Let’s cover the obvious advantages to a clean chart first:

#1 Nothing but price action present. Ultimately price action in our favour is what we want so being able to see the price bend in any direction clearly is, of course, an advantage.

#2 We can paint the key action in our chart any way we want to. If we see anything on the chart that we like the look of, in any half decent charting package, we can paint a vertical line, horizontal line, rectangle, triangle, rhombus, penis, whatever we want that fits our model and trade with that information accordingly.

#3 We can identify candle pattern. Lots of strategies use patterns which follow distinct and clear repeatable models, such as inside bars, or double tops and bottoms. With that information we can effectively trade those positions with minimal risk as well, and our entries are very clear.

“The only way to trade is with a clean chart.”

In a word – total bollocks. Wait, that’s two words. Fuck.

As VP of NNFX has said previously, Forex operates very differently to every other tradable market. There’s virtually no chance of a market being saturated or hitting a lack of supply with Forex. As such there’s no danger of supply and demand being an actual thing.

Therefore – what is the point of supply and demand? What is the point of trendlines (which are intended to follow a market up or down and act as a mobile point of support or resistance)? What is the point of observing price action that tells us nothing about the future?

These tools of course have relevancy, but they have relevancy in the market that they were created for. Trying to form-fit an equation or concept developed for a completely different type of market is going to give you a false impression, and likewise with drawing these things yourself. Trendline breakouts don’t work without further confirmation, and even then not frequently. Supply and demand can be used as a sign of a resistance point in the market, but even that only really extends as far as “when is the smart money at that point going to be withdrawn and let the pair run”.

Don’t get me wrong, it’s not like indicators and technical trading can tell us the future either. Every single equation is only a reflection over what’s happened over a period of time. However, they can show us which way a pair looks like it’s travelling, and when combined with multiple pairs that show us what a single currency might be doing, I truly believe in the power they can show over fundamental analysis that I perform myself (and the confirmation bias that comes with that).

A bit closer to where we want to be, although still using a ton of useless tools

So, how do we make a clutter-free chart with indicators and what’s the benefit?

Let’s start by assessing what kind of indicators are out there.

  • Trend indicators. Indicators that confirm a trend is starting or happening.
  • Momentum indicators. Indicators that confirm how quickly the market is moving.
  • Confirmation indicator. Indicators that confirm our main indicators are telling the truth, to the best of their knowledge.
  • Volume and Volatility indicators. Indicators that tell us how much liquidity has been put into the market and backing any potential move.
  • Overbought/Oversold indicators. Controversial, but they exist. Markets that suggest the current market position is reaching its top or bottom (for these kind of indicators, you want to concentrate on trend cycles)

From this selection, what do we need? Realistically, only one of each (perhaps two confirmation indicators).

Think about it. Having more than one trend indicator not only matches two indicators which separate rules, but very likely separate settings as well. If the best results for each indicator run across different periods, what on Earth is that telling us? We may as well just flip a damn coin. The lack of accuracy grows when you consider volume indicators. These engimas are already hard to get a read on – why complicate the issue by including two or more?

When we’re developing an algorithim, if we’re building it in the NNFX style, we’re looking for 6 indicators at most. It’s just easier to follow and even more key, it’s easier to demonstrate. As traders, we tend to talk a lot about our success and not a lot about our failings because it’s a tough industry to ask for help in. It becomes a lot easier to collaboratively develop and discuss strategies and approaches when you can point out particular successes on your chart.

The ultimate benefit to a clutter-free chart is the same ultimate benefit as an indicator-free chart – we can clearly see all of our signals without them popping up in the way of the price action. As long as we can take a glance at our chart and confirm yes/no without needing to dive into the inner workings of the market or our indicators, then our chart is going to look beautiful by default.

Most importantly, a clutter-free chart with a functioning algorithim that delivers high probability trades might still not look sexy, but the money it generates will put food in your belly and roof over your head. What looks better than that?