First Analysis
Guide for beginner analysis.
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Guide for beginner analysis.
Last updated
Was this helpful?
There is a lot of misconception when it comes to analysis. The biggest misconception is that it's very hard to perform. Your analysis will be as hard as you make it for yourself, so do not overdo it. This beginner's guide focuses on the fundamentals of how to approach your analysis when using algorithmic trading systems. Please understand that these are all guidelines and not a guaranteed success.
When performing analysis, whether it's charts or other relevant data, you should always use a dependable and known reliable source of data. In this guide, we are going to use , , and available broker (exchange) data.
When using one of the reliable data sources shown in the paragraph above, you have to know exactly what to look for. In financial markets, there are a few key components to look for:
Volume
Sentiment
Structure
Correlation
Volume is one of the most important components in financial markets. Volume will tell you exactly how much money is exposed, traded, or moved inside the market. When volume is low, you can expect higher volatility because less liquidity is required to move the market. When volume is high, you can expect a more efficient and stable market because it takes a lot of liquidity to move the market. When you start trading, especially with algorithmic trading, you should avoid low volume markets as they can be unpredictable and require a far better understanding of the market. Sentiment is the psychological factor driving the market. Sentiment can be impacted by news, seasons, politics, or other high impact events every single day. When an event is of large scale, the sentiment can change and the current market trend could stall or change.
Structure is the way price portrays itself, this can be by forming a certain pattern or just simply the way price moves in markets. There are numerous ways of looking at structure, but to keep it simple one should look at structure as: is the price moving up or down? Is the price moving sideways or are we trending? This is something you should be able to identify quite easily when looking at higher timeframe charts. This is often mistaken as being too good to be true or the chart being too obvious. When using algorithmic trading strategies, one should always respect the structure the way it is displayed on the charts and never form assumptions based on speculation.
Correlation is the way how markets move together, often ignored or just as structure overlooked as too good to be true. Smaller markets tend to follow bigger markets. For example, we can look at the correlation between Bitcoin and the S&P500. Correlation is something every market participant should take into consideration while performing their analysis.
At PinoAPI, we keep it simple. We determine our risk before entering a position, know exactly where we are invalidated, and never make decisions based on emotion. There are three rules every user should follow to be consistently profitable:
Always do your own analysis and research.
Assume that you may be wrong one day.
Always respect the risk indication over your analysis.
❝One thing that makes it possible to be an optimist is if you have a contingency plan for when all hell breaks loose.❞ ~ Randy Pausch
For your chart analysis, you could use various tools. In this guide, we will be using TradingView. Here's a step-by-step guide to analyzing a market on: .
To analyze the chart of your instrument(s), you have to locate their ticker symbols to load up a chart. For example, if you want to analyze Bitcoin/USDT (BITCOIN/TETHERUS), you'll need to locate its ticker symbol.
On a chart, each candlestick represents the high and low in the amount of time of your chosen timeframe. The less experienced you are, the higher the timeframe you should look to analyze, as the lower timeframes usually produce more noise, making them more unreliable to analyze. Recommended timeframes for beginners are Daily, 12H, 6H, and 4H (H for Hour).
Looking at charts can be intimidating when you're not used to it, but the most important part is to just accept what you see. The chart shown above displays the daily timeframe. It's important not to overcomplicate what you see. For example, if the price is going down, the price on the high timeframe is Bearish If you want to refine your trend analysis of where the price is going, you could also mark out all key levels with a simple trendline. On the picture shown above, we plotted Lower Highs and Lower Lows, giving you another indication of where the price is going. The picture shown above tells us that the price is going up. We refined the chart by plotting key levels with a trendline. The chart is showing Higher Highs and Higher Lows, meaning we are going up and we are bullish.
Now that we have our direction (trend), we have to find levels of confluence. These levels are important, as the price is likely to respond and return to those levels. When using algorithms to trade, always look for extremes. In the picture shown above, we have plotted the extremes, which are levels likely to contain liquidity. When extremes get tested against the current direction (trend), we call this resistance. When extremes get tested following the trend, we expect those levels to be taken out, and we have trend continuation. In the picture shown above, we use the Fibonacci retracement tool to determine levels of resistance. This is just one of the many ways proven to be effective in finding resistance. To have high probability, one should always wait for the high timeframe to reject before accepting resistance as a potential short entry (Bearish/Bullish retest).
To gain higher probability, you could also choose to look for additional confluence. Patterns are a solid and reliable source of confluence. When using algorithms, one should always use patterns as additional confluence. You can combine patterns with your levels of importance and use them as triggers for your algorithmic setup.
Use these examples for reference. The picture above shows us a more in-depth analysis of Bitcoin. (You can find more advanced information about analysis ).
The picture above provides a good example of the basics of algorithmic trading. The algorithm only trades within its predetermined risk boundaries.
