By Raghee Horner of EZ2Trade*

Charts, News and Indicators. In my travels, I usually find traders and investors of two camps: Fundamentalists and technicians. Although I use aspects of both, I really don’t consider myself either. I am a chartist. I rely primarily on price and price action. This, of course, leaves room for secondary considerations, such as indicators and news. But, the main tool I use for entering the market (meaning determining entry price, profit targets and stop loss) is price.

Enter the price chart. The art of tape reading and chart study seems to be scrutinized constantly as if chartists somehow ignore news and indicators. This simply is not true. Price can offer certain cues if a trader or investor takes the time to see the psychology behind the price. There needs to be a measurement though. Otherwise, this psychology cannot be compared to other psychological reactions.

In many ways, each candlestick or bar is a singular representation of the fear and greed in the market. It’s a psychology gauge. Now add price to the equation. What price did this reaction occur at? Was it a price that was reacted to earlier in the day? The week? The month? The year? Put these pieces together, and you can begin to map out the emotion of the market. That's what charts do.

"The Pictorial Aspects of Charts." Richard Schabacker wrote that charts offer "the complete record of the past year's daily trading in any particular stock." This same idea can be applied to intraday charts, futures and Forex. Charts allow us to look back in time and see what reaction a certain market had to news, data or any event of the day. Charts let us look into the degree of emotion from market participants.

Putting price to work can begin with the simple understanding that certain levels are psychologically relevant. That’s why I call these "psychological numbers". Look at any chart -- stock, index, Forex, futures -- and look for the "00" or "50". The whole and half marks are typically going to be active levels with orders waiting.

Any trader with access to Level II or DOME (depth of market expanded) can see that these price levels are like magnets for orders and thus create the support and resistance we see on the chart. Other psychological numbers include the "20" and "80" price points. Looking beyond price points, a trader or investor should examine psychological levels, such as 52-week highs and lows, breaks below or above the 200 SMA (simple moving average); even monthly highs and lows can have an impact.

Positioning yourself around these psychological levels can also improve order execution. When price is approaching one of these psychological levels, you can assume with confidence that these levels will be waiting with orders in line to fill.

If you are waiting on a breakout above a psychological resistance level, let these orders show you the proof or a breakout. If the level represents a profit target, put your order before the psychological number, so you can step in front of the size. These are just two of many strategies you can employ to improve your trade entries and trade management.

Understanding the Impact of News and Price. Any fundamental trader can benefit from checking these simple price points before news releases, earnings or any fundamental event. They offer insight into the market in front of these events and even allow a trader to measure the effect of the news being discounted into the market. In the next installment of Chartology, I will discuss trends and how to recognize market cycles in your pursuit of mastering price and price action.

*Reprinted (and modified) with permission from Raghee Horner