Why Is Chart Structure so Important?

09/22/2015 6:00 am EST

Focus: STRATEGIES

Michael Seery, of SeeryFutures.com,outlines his definition of chart structure in regards to trade entry and exit and why he feels that if the charts have a tight pattern it will allow the trader to minimize risk, which is, for him, what trading is all about.

What do I mean when I talk about chart structure and why do I think it’s so important when deciding to enter or exit a trade? I define chart structure as a slow grinding up or downtrend with low volatility and no chart gaps. Many of the great trends that develop have very good chart structure with many low percentage daily moves over a course of at least four weeks, thus allowing you to enter a market and allowing you to place a stop loss relatively close—due to small moves—thus reducing risk.

Charts that have violent up and down swings are not considered to have solid chart structure as I like to place my stops at 10-day highs or 10-day lows and if the charts have a tight pattern that will allow the trader to minimize risk (which is what trading is all about) and if the chart has big swings your stop will be further away, allowing the possibility of larger monetary loss.

By Michael Seery of SeeryFutures.com

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