Three layers of an explanation
“The close was 101” is an observation when confirmed by the data. “Buying pressure increased” is an interpretation requiring more evidence. “I will practise an entry if these conditions hold” is a rule. Separating the statements helps you review which part failed without rewriting the history.
Charts and indicators transform past or currently available information. A visual shape can help formulate a question, but it does not remove uncertainty. Adding more indicators also does not guarantee more independent evidence.
Write a rule that can fail
Synthetic example for learning to record rules: after two closes above a previously marked reference, observe the next three periods. Define “above”, when it is checked and which measure you will use. The aim here is to evaluate a description rather than recommend an entry.
Before advancing the scenario, record what would count against your hypothesis. If every possible result becomes confirmation, the idea is not testable. Do not change the reference after seeing the outcome of the same attempt.
Compare possible explanations
Find at least one alternative interpretation of the same data and list what would distinguish them. The scenario may not resolve the question; recognising that limitation is part of the work.
A series of cases can suggest further questions. Evaluating a method requires a sample, selection rules and defined costs. One appealing example only demonstrates that this particular example occurred.
- Write an observation, an interpretation and a rule.
- Record the condition that would invalidate the hypothesis.
- Move on when another person could apply the rule without guessing your intention.
Check your understanding
ACTIVITY · AT YOUR OWN PACE
Apply the idea before continuing
Write your answer before opening the reasoning. All prices, quantities and outcomes in this activity are hypothetical. Keep your explanation in your own notebook; it is not sent to the server.
The case
Fictional observation rule: require two consecutive closes strictly above 100. The visible closes are 100 and 101. Price rises afterwards.
Your task
Was the condition met? Explain whether the later rise changes your answer.
Compare my answer with the reasoning
No: 100 equals the reference and is not above it. The later rise changes neither the known closes nor the rule’s meaning. You can propose another rule for a new exercise while preserving this observation as an unmet condition.
Evidence you should be able to explain
A rule another person can apply, its verdict using visible data and possible disconfirming evidence.
If you cannot justify it, revisit the example and state what is missing. A memorised answer or simulated profit does not replace this explanation.
Practise an unmet condition →Sources and references
Chezur examples and explanations are educational. Consult the original source to verify conditions, data and updates.
Context and review of this explanation
How do I turn a chart observation into a testable hypothesis?
- Topics
- Method and statistics · Chart reading
- Level
- Beginner
- Skills
- Form a testable hypothesis · Describe a chart
- Examples
- Hypothetical situations illustrating the concept.
- Specialist review
- Not documented for this edition. Automated structure and internal-link checks do not establish specialist review.