The Tradecharting approach is one based on Technical analysis of the charts of trading instruments. Significant Fundamental news items, as recently seen in 2020 with Coronavirus, have the potential to quickly undermine identified chart patterns. This is why it is critical that traders appropriately manage their trade exposure and risk per trade.

One example of this undermining presented in March 2020 and is outlined below.

Friday 20 March: The ASX-200 / XJO index shaped up at major Technical level at the end of the trading week and this was a region that had potential to offer potential support:

XJO weekly: The ASX-200 closed with a large, bearish weekly candle and down near the key 4,700 level; being the 61.8% Fibonacci retracement level of the 2009-2020 swing High move. The 61.8% Fibonacci level is a major level in technical analysis and you can read more about the impact of this major S/R region here and here.

XJO daily: Friday’s daily candle closed as a bullish-reversal Inverted Hammer and so I had warned traders to watch for any reaction at this 4,700 level. The 4,700 and 4,600 levels had not actually been ‘touched’ yet so there was potential for more weakness to come:

XJO 4hr: The 4hr chart had shaped up with a bit of a bullish-reversal Descending Wedge shaping up so traders were warned to watch these trend lines for any new momentum based breakout: up or down!

Weekend Sat 21-Sun 22 March: 

The weekend in Australia was shaped by major Coronavirus-related news announcements about further restrictions across the country but there was a very significant development announced for NSW. This was that all non-essential business was to close at midday on Monday and this was met with obvious community anxiety.

Monday 23 March: 

The weekend developments led to an extreme risk-off shift at the Australian market open and the bullish patterns on the daily and 4hr charts, noted on the weekend, were undermined by this acceleration of fear.

XJO 4hr: There was no bullish Descending Wedge breakout here with the risk-off acceleration. The breakout was to the downside:

XJO daily: There was no bullish activity on Monday after Friday’s bullish-reversal Inverted Hammer due to the accelerated risk-off:

Summary:

Technical analysis is a useful tool to help traders making their trading decisions. However, all traders should be aware that major Fundamental news items will always have the potential to undermine the best Technical Analysis.

Traders always need to keep abreast of major news announcements and manage their trading exposure by using risk management and trade sizing strategies that appropriate foo the market conditions.