To do narrative you watch what the child is doing and write it down, you should not be participating in what the child is doing only watching. Keep it in the present tense if you can and always make sure it is a factual commentary so that a person reading it has a picture of what is happening. You should do this for less than 5 minutes.
It aids a childs learning because you use obs to work out which of the eyfs they nare meeting and which they will need encouraging to try, you can also find out from obs what their interests are so that these can be used in planning to try and get him to do other tasks, the example we were given was a little boy who likes toplay dinosaurs but doesn't do creative, put dinosaurs in the paint to print with and this will encourage him to paint.
Hope this is of some help x
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