Did you know you only need one thing to trade like a champion? That one thing is an understanding of technical analysis basics.
There are so many sources for financial information.
A few are:
- magazine articles
- advisory letters
- alert services, and
- analyst recommendations
With all these sources, you’d expect that you need to be an expert in almost everything to trade well.
Don’t worry. You don’t.
Although there is an huge amount of information available, there is only one thing you need. That one thing is a trading chart.
In this article, I will distill for you 5 charting methods that rely on technical analysis basics. They will help to replace confusion with refreshing clarity. Once you understand these methods you will be on your way to trading success.
Technical Analysis Basics – Method #1: Trade what you see, not what you think
Traders fall into two groups. Either they are technical traders, or they are not.
Most traders are in the not group. Don’t get too eager to join the crowd though. Remember, 90-95% of all traders are not successful.
The ones who succeed with technical analysis are not as recognized. This isn’t because they aren’t successful (they are). It’s because they are in the minority.
It’s time to join the successful minority.
Focus on the fact that technical analysis has one primary outcome – consistent profits. Traders can achieve this by focusing on what they see on the charts. Shut out the noise and use what the chart data is telling you.
Technical analysis helps you focus on consistent profits instead of expectations. It removes any interpretation of the news, the media or the analysis of others. What’s left is a simple relationship between the trader and price.
Look at where the price has been in the past and watch where the price is now. That’s all you need to do as a technical trader. This simplicity can guide you to lasting success.
Technical Analysis Basics – Method #2: Instagram, filters and charts
The most misunderstood and misused trading tool is the chart.
How is this possible? Isn’t trading all about charts?
It should be, but most traders spread their focus too far from the clear base of the chart data.
“The chart is everything in trading. Spend the time to understand it.”
Most basic charts plot every transaction in the order of trade occurrence. Then it a matter of playing connect the dots.
The different types of charts let you connect the dots in different ways.
Imagine that the basic chart transaction points are a photo. In that case, line charts, bar charts, and candlestick charts are like filtered photos. Each presents the same information, but in a unique way.
Chart types enhance clarity and improve the ease at which a trader can analyze the past price action. Each chart type has pros and cons. Which one is the best for you?
I recommend sticking to the one that shows you only the information you need. There is no need to complicate things. You can get an in-depth understanding of the market from the most basic of chart types.
Technical Analysis Basics – Method #3: Learn the shapes of the markets
The data displayed on charts creates certain geometric, shape-based patterns.
To succeed, all a trader needs to do is recognize the shape and plan a strategy around it. They don’t need to understand why the patterns form.
But even though it’s not necessary, understanding why they form can add power to your trading.
So how do you determine why a particular chart shape is forming?
An elegant solution is to put yourself in the place of other traders.
Here is an example:
The price of a stock displays a particular range or a flag pattern. This shape reveals the intentions of market participants. Traders are not compelled to buy above recent price highs. Nor do they see a need to sell below recent price lows. The feelings and actions of those traders are what create the range or flag patterns.
What does this all boil down to?
Your ability to identify the important patterns in charts gives you an advantage. If you know what causes those shapes to form, your advantage is even bigger. You have a spyglass into the collective mindset of all other market participants.
Technical Analysis Basics – Method #4: What technical indicators are telling you
Technical indicators are a major part of many traders’ strategy.
But struggling traders often spend too much time debating which are best. If they spent as much time practicing there would be a lot more trading success stories.
Steer clear of this trap by recognizing that technical indicators are tools. Tools can be powerful. Tools can be useful.
But tools are only as powerful and useful as the hand that wields them.
“Trading indicators are tools and they are only as good as the trader who wields them.”
Understand that 99% of indicators are derivative.
What this means is that they are calculations or representations based on raw data.
That raw data consists of three things:
- Price that trades have happened in the past
- Time and order those trades occurred, and
- Volume of product transacted
Many chart types themselves are a derivative of the raw data.
Indicators can play a key role in your trading. Get the most out of them by knowing what they represent. Only then will you know how they can improve your trading performance.
Technical Analysis Basics – Method #5: The silence of a super trader
The word “trader” conjures up a many common images.
Some of these stereotypes are:
- Shouting in the pit with pen and pad in hand
- Sitting with 10 screens flashing away with price quots
- Watching breaking news stories and headlines
These pictures are far from the realities of the retail super trader.
Traders who use technical analysis can step above all the noise.
If you choose to focus on technical analysis, you can step above the noise too. Doing so saves money, improves health and maintains sanity.
Traders who rely on technical analysis thrive without the approval of others. They know one thing can tell them how they are doing. That one thing is the market itself.
Embrace technical analysis and the price chart as a primary tool. You can ignore the consistent chatter and do what’s most important in trading – making money.
For more day trading techniques, tools & strategies, check out these articles:
- 5 Simple Tips To Get Into Day Trading (With Success)
- 10 Mind Mastery Methods To Hack Your Trading Psychology
- 5 Lies That Can Kill Your Online Trading Success
Understand these five foundations of technical analysis basics. It will get you on the path to success by leveling up your trading.
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