Watch daily commentary and make informed trading decisions
Watch daily commentary and make informed trading decisions
Sitting down to learn patterns and familiarise yourself with common indicators is one thing, but employing technical analysis on actual markets is another.
Many traders get flustered; their knowledge is either inapplicable to practical scenarios or too scattered for a coherent trading plan. Here’s a step-by-step guide on how you can apply technical analysis to your everyday routine to make results more consistent.
Finding the trend’s direction is the first step in determining future action. Simple tools can help.
Provide a clutter-free overview for a clear sense of directionality.
Specify movement from a specific point in time.
Filter out noise and clarify the underlying trend.
Support and resistance are key to any technical trader. These often signify turnarounds and breakouts, and are a pillar of certain patterns, like flags and pennants.
Watch out for round numbers, as traders subconsciously place psychological trading barriers there.
You'll want to keep a close eye and react quickly, as other traders are primed to react as well.
While raw data can be enough for experienced traders, indicators can make market situations much clearer. After you’ve established direction with moving averages, RSI and MACD indicators can help. Combine Moving Averages (to confirm trend direction) with RSI or MACD (to gauge momentum).
For example:
RSI below 30: Oversold, buy opportunity
RSI above 70: Overbought, sell opportunity
MACD line crossing above signal line: Bullish shift
MACD line crossing below signal line: Bearish shift
RSI below 30: Oversold, buy opportunityRSI above 70: Overbought, sell opportunityMACD line crossing above signal line: Bullish shiftMACD line crossing below signal line: Bearish shiftHere’s where your memorisation skills come in. Some common patterns include:
You should have a strategy for entering and exiting trades, only slightly modifiable on a case-by-case basis. For instance:
The fast pace of technical analysis makes it easy to forget about managing risk.
But learning how to prevent major losses is just as important as taking wins.
Don't get swept up by the speed.Calculate proper position sizes, don't overleverage your trades.Most importantly, don't forget to set entry and exit rules, and if you're struggling to follow them, reinforce these rules with take profits and stop losses.Don't get swept up by the speed.
Calculate proper position sizes, don't overleverage your trades.
Most importantly, don't forget to set entry and exit rules, and if you're struggling to follow them, reinforce these rules with take profits and stop losses.
There is no trading strategy that always wins. Keep a journal, see what works for you and what doesn’t. Locate mistakes, work on them, and use this continuous process to improve consistency.
All trading involves risk. It is possible to lose all your capital.
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