Constructing Our Charts

In our condensed version we saw how we use three basic charts to trade with – a one minute, five minute and a fifteen minute chart. Each one serves a different purpose. But before we can use them we have to modify the parameters to fit the way each is used.

We’ll start with the 5 minute chart. When it’s first displayed, depending on your initial setup, it may be somewhat different than what we want. If you don’t see a 5 minute chart, click the icon above the platform chart on the right.

Once the chart is in front of you make sure you select EUR/USD. . 5 minute. . Candlestick at the top of the chart.

Next, we want to set up our exponential moving averages. There are two of them, a 30 bar, which means thirty 5 minute bars will be averaged (with the last few bars exponential weighted), and a 20 bar average which we will colour green.

Click on “Add Study” at the left bottom and select EMA. Again, at the bottom change the 14 to 20 and click the plus + sign next to it. Click your cursor on the line displayed and change the colour to green.

Do the same thing again only change the 14 to 30, and colour the line red.

Next, we want to set up the Stochastic index at the bottom of our chart. Stochastics, first introduced by a Czechoslovakian and made popular by publisher George C. Lane, they help us get a better picture of what is happening.

I modify it in an unusual way. When it’s used with a one minute chart it’s fairly accurate, but the turns tend to lag progressively more and more when used with a longer time frame, for example, 5, 15, 30, etc.

Still, it’s the only real indicator I use on a consistent basis.

Stochastics are based on the idea that as prices rise the closing price for that time frame (or bar) tends to settle close to the top of the highest price registered for that time frame. This happens because traders are stimulated to buy as prices move higher. The reverse is true in a decline.

Click the “Add Study” button again and select Slow Stochastics. Change the 14 to 8, leave the 3 as is and click on the +. You’ll see two lines appear at the bottom.

One will be sort of jerky and the other smoother. Without going into why, I use just the smooth line. I get rid of the other by clicking on it and colouring it black.

The line we’re hiding is much faster, but can give you a false sense of direction. If you want to tell what it is reading look at the number at the lower left part of the chart as you move your cursor over a bar. It will rise and fall accordingly.

Now we need to give it some framework to help us use it. Stochastics rarely move much higher than 80 or lower than 20. That’s why we put in two horizontal lines at 80 and 20. Click on the stochastic area and select “Horizontal Trendline.” Move it to the 80 level and click again. Do the same thing only place it at the 20 level.

Do the same thing again at mid-level, 50, and colour it green. That completes our stochastic indicator. You can expand or contract it by clicking and holding the top of the index frame.

Remember, we’re doing all these adjustments just to the 5 minute chart. We’ll create the 1 and 15 minute charts by copying the 5 minute chart. Once we’re finished we’ll save all of them by clicking on Tools=>Save Current Layout.

I covered how to create the “Latitude Lines” earlier, but they’re just like creating the stochastic lines. I colour them blue and “Duplicate” them at the selected levels.

Now we can duplicate our 1 and 15 minute charts. Simply click the icon on the 5 minute chart and change the time frame at the top of the new chart to 1 minute. Do the same thing to create a 15 minute chart.

I usually put the 1 minute chart on full screen. I then grab the edges of the 5 and 15 minute charts to contract them so they’re on top of the 1 minute chart .

I’m sure you’re beginning to wonder if we’re ever going to get to the trading business  But I can assure you all of this is necessary. Keep in mind a fair amount of work goes in to producing any kind of profit. Is it worth it?

How long would you have to work to earn $500? A day? Two days? A week? I'm a great believer in the concept that we're paid for what we're worth.

If we're out of work we're worth nothing! If we're a CEO we might be earning $500 an hour. So the effort we put in to earn $500 or more is equal to the time we spend doing the work to produce these results. I don't know how to put it any other way.

But, guess what? We’re all through with the paperwork and ready to start trading.