When looking at a price chart, what should a trader really focus on? This single question often makes the difference between blindly entering a trade and taking a trade with conviction and clarity. If a stock appears on a trader’s scanner due to a specific setup, does it mean the trade should be executed immediately once the entry triggers?

In this newsletter, we will break down the key elements a trader must look on a price chart to refine stock selection and enhance the probability of success.

First Structure

Structure

The very first step when you open a price chart is to zoom out and observe the bigger picture. Ask yourself: Is the price consolidating for years? Is it shaping a “Cup” pattern or a “Cup and Handle” formation? What is the overall trend of the instrument?

These are the key points a trader must check before anything else. Yet, many traders fall into the trap of focusing only on the most recent price action and making decisions in isolation, without accounting for the larger structure. To avoid this, start by adding a Moving Average and study the broader structural formation of the instrument.

The Highs

A trader should also pay attention to where the structure is forming. Price action near or at a new All-Time High is highly significant because it indicates the stock is in uncharted territory, with no historical resistance overhead. If the stock is not trading near its All-Time High, it should at least be trading close to its 52-week high, as this reflects strength by surpassing the highest price of the past year.

When given a choice between a stock trading near its 52-week high or its All-Time High, the preference should always be the latter, as it carries a stronger implication of momentum and potential continuation.

Important Demand and Supply Zones

Next, a trader should check the important Demand and Supply zones on the chart. On Point and Figure charts, you can mark these zones using clusters of mini-tops or high poles for Supply, and mini-bottoms or low poles for Demand. On OHLC charts, it is a bit trickier. Here, clusters of MSH (Market Structure Highs) can be used to mark Supply zones, while clusters of MSL (Market Structure Lows) mark Demand zones.

These levels can act as a guide for the recent price actions.

Then Price

Relative Strength

After studying the structure and bigger picture of a stock, the next step is to zoom in and check for strength. A strong stock should be outperforming the overall market (Nifty 50) and its Sector, regardless of its price level. If it is not outperforming, even at an All-Time High, it signals weakness. To measure this, traders can use tools like the RS Alpha indicator or compare the stock’s chart against Nifty 50.

Recent Patterns

When a stock is outperforming, the focus can shift to its recent price action. At this granular level, momentum should be assessed through both indicators and price structure. Traders should examine whether the stock is forming Higher Highs, whether the recent Market Structure or Mini-Bottom remains intact, and whether multi-candle formations such as Rectangles, Triangles, Head and Shoulders, or Double Bottoms are developing. For Point and Figure charts, attention should be given to patterns like Turtle, Trap, or Anchor formations, which provide additional insight into the strength and sustainability of the move.

Then Confirmation

The Fundamentals

Fundamentals should always be evaluated in the context of the type of setup being considered. For a swing setup, where trades are typically held for a few weeks, fundamentals may contribute moderately to the decision-making process. However, when the setup is intended for a few months or years, fundamentals take on far greater importance. In such cases, rather than conducting an exhaustive accounting-based analysis, it is often sufficient to focus on key aspects such as sales and profit growth, the long-term prospects of the industry, and the company’s relative position within that industry.

When charts are analyzed in this manner, it brings clarity and structure to trade decisions. The process can be summarized as: First, assess the Structure; then, analyze the Price; and finally, look for Confirmation.

For new traders, this sequence may not feel natural at first. In that case, it is helpful to write these steps down on paper and keep them nearby while analyzing charts. With consistent practice, this approach will gradually become second nature.

If this newsletter gave you a new insight, do share it with your fellow traders.

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