Technical analysis forms the foundation for 95% of my trades with the main reason being the level of consistency it provides me. Being able to read a chart, I can more often than not have a good read on the momentum of the commodity and the key areas to be wary of and to aim for. The ability to understand the cycle which the market is in is critical in putting probability on your side.
This type of analysis serves two main functions – identification by way of describing price action and forecasting by interpreting and inferring future price action. This type of analysis is based on the assumption that price patterns are repetitive and can therefore be used as a basis for prediction.
This type of analysis can be broken down into 3 areas: sentiment, flow of funds and market structure indicators. Out of these 3, my particular focus is on market structure indicators given availability of the information I have at hand.
Market structure indicators monitor areas such as price indexes, market breadth, cycles and volume to evaluate prevailing trends. These can come in the form of indicators like moving averages, trend lines and price patterns.
Understanding these can give a valuable edge in determining entry and exit levels for prospective trades. More often than not, price and methods to measure price move together with one another but towards the end of such runs, you will often see a divergence between these indicators. Identifying these levels of deterioration are major key and are useful tools to have in your trading arsenal.
In the following pages, I’ll be going through market structure indicators which I have found useful during my trading journey.