Candlestick charts, in a sense, are also an indicator, because they are the product of price calculations on the chart. However, compared to other indicators, they are closer to the market itself, so we generally do not refer to candlestick charts and trading volume as indicators.

Definition of Naked K

Naked K trading, also known as price action trading, is an intuitive method of price movement, which is entirely based on price and historical trends to infer the future direction. Naked K trading is a trading technique that combines all the best strategies. By simply looking at the naked K chart, one can infer the future market performance without the need for any technical indicators.

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Have you ever seen prices rise or fall without any reason? Or have you noticed that your key support/resistance levels were still broken through? The occurrence of these situations is definitely because you did not pay attention to the market structure when trading.

Market structure refers to the arrangement and connection of peak highs and peak lows on the chart. Specifically, it involves connecting all the extreme price points during the price movement to form a fluctuating curve, which can help traders judge the market trend. Understanding the market structure is the foundation of reading the naked K chart and can help traders make effective trading decisions. Therefore, understanding the market structure is the essence of Naked K trading!

This article will introduce three simple steps to help traders identify the current market structure and determine the market trend through price action trading techniques to make profits.

Step 1: Identify Key Points

The first step in determining the current market structure is to find and mark key support and resistance levels on the price chart. Key support and resistance levels usually contain a large number of buy and sell orders, so they can be described as areas of increased supply and demand.It is worth noting that: It is best to determine key support and resistance levels within a longer time frame, such as daily or weekly charts. In addition, it is also necessary to look for obvious wave highs and lows, and mark them with horizontal lines. The marked horizontal lines are places where the price may retrace, as shown in the figure below, which requires special attention.

In addition, there are several other key technical levels to pay attention to:

1. Psychological support and resistance levels: These are usually integer exchange rates, such as 1.00, 1.10, 1.20, etc. Many traders will set orders near integers.

2. Fibonacci retracement levels: Used to find potential levels of price retracement and potential trends.

3. When used on a higher time frame, important Fibonacci levels (such as the 61.8% retracement level) may become key technical levels, where there may be a large number of open orders.

4. Pivot points: Pivot points are turning points of market direction within a day, and a series of points can be obtained by simply calculating the high/low and closing price of the previous day, which may form key support and resistance lines.

5. Range traders can use the pivot point system to confirm potential reversal points, and breakout traders can use the pivot point system to confirm key breakthrough positions in the trend.

6. Dynamic support and resistance levels: Key technical levels are not necessarily static, they can also be dynamic.

7. Moving averages are often used to determine dynamic key technical levels that appear near the 50-day EMA, 100-day EMA, 200-day EMA, or Fibonacci EMA levels (such as the 144-day EMA).

8. Confluence areas of support/resistance: These areas are where important technical levels intersect.9. For example, an upward trend line can provide support for a currency pair at the exact price level where the horizontal support is located. This will form a confluence support area between the upward trend line and horizontal support.

Step Two: Analyze Market Trends

If you have already identified and marked key technical levels on the candlestick chart, you can then start analyzing the current market direction, which is the current trend.

Many price action traders trade solely based on the overall trend direction, as these trading methods often have the highest profitability rate.

The market primarily moves in three ways: upward, downward, and sideways.

- Upward market: In an upward trend, characterized by higher highs and higher lows on the chart.

- Higher lows formed during a period of price consolidation are short-term price movements against the established trend. They are usually formed by profit-taking orders from traders who are already in an upward trend.

- Once the price drops, new buyers enter the market because they believe the current market price is relatively undervalued. This is the reason for the formation of higher lows.

- Downward market: In a downward trend, characterized by the formation of higher lows and higher highs on the chart.Horizontal Markets: When there is no characteristic of an upward or downward trend, and there is no clear direction, it is a period of horizontal consolidation, also known as a range market.

In the range market, price action traders tend to buy when the price reaches the lower boundary of the range and sell when the price reaches the higher boundary of the range.

For foreign exchange traders, identifying key technical levels and determining the current market direction is not enough; there is a key element missing to understand the current market structure, which is market psychology.

Step Three: Analyze Market Psychology

Analyzing market psychology allows you to understand the thoughts of most traders, which can help you buy or sell orders when the buyer has an advantage.

Usually, price action traders use charts and candlestick patterns to analyze the current market psychology. Chart patterns are a specific form from which a lot of information about the battle between buyers and sellers can be obtained. So how do you analyze market psychology? In fact, market psychology is usually reflected through charts and candlestick patterns.

Essentially, there are two main types of chart patterns:

1. Reversal Breakout Patterns

2. Mainly including head and shoulders, head and shoulders reversal, ascending wedge in an uptrend, descending wedge in a downtrend, double tops and bottoms, triple tops (bottoms), triangles, etc.

3. Continuation Patterns mainly include rectangles, ascending wedges in a downtrend, descending wedges in an uptrend, flags, and pennants, etc.Chart patterns can be formed by dozens or even hundreds of candlestick lines, while candlestick charts can be formed by a single candlestick line or just a few. Candlestick charts are commonly used to confirm order settings, but traders should not make trading decisions based solely on them.

These patterns mainly provide some reference for the game between buyers and sellers based on the top and bottom of the wick, as well as the size of the candle itself.

Like chart patterns, candlestick patterns can also be divided into reversal breakout patterns and continuation consolidation patterns:

- Reversal breakout patterns: Hammer, Hanging Man, Bullish Engulfing, Bearish Engulfing, Evening Star, Morning Star, Dark Cloud Cover, etc.

- Continuation consolidation patterns: Doji, Three Red Soldiers, Three Black Crows, etc.

Chart patterns and candlestick models reflect the psychology of traders:

- If a currency pair forms a reversal breakout pattern, such as a head and shoulders pattern, with a lower high on the right shoulder, it means that the sellers are likely to gain the upper hand soon.

- If a continuation consolidation pattern appears, such as a rectangle, it indicates that the market is currently in a consolidation phase.