Mastering Technical Analysis: Part 1
For those of you out there who are looking to start trading the markets, there's so much different information available to you on the internet it's hard to know where to start. If you search the web looking for information on how to trade you will come up against a whole heap of people claiming that to make money you need to use Candle Stick Patterns, Elliot Wave theory, Gann, Descending Triangles and many other methods. All of these methods can be quite overwhelming for the budding trader and quite frankly you're better to start off trading by mastering the most important basics.
In this 2 part series, we aim to take you through two of the most powerful areas of technical analysis which you need to absolutely master, Trend and Support and Resistance. That's it, no sexy indicator, no complicated patterns just a couple of really key elements that will be the foundation for your trading. If you start out your trading journey mastering these two areas you can be sure that you're on the right path to trading success.
Trend is the single most important technical tool to master in trading. Whether you're trading a trend following system or a mean reversion system you need to be sure you know who's in charge, the bulls or the bears. The bulls would be in control of an uptrend and the bears in control of a downtrend. An uptrend is defined as price making higher highs and higher lows and a downtrend is defined by price making lower highs and lower lows. It's all very well knowing the definitions but you need to master how to recognise trends in price action on live charts. The images below show visually what you need to be looking for to find a trending market.
If you think you would like to be a trend following trader, when you spot an uptrend in the markets you would then be looking to gain a long entry. Alternatively if you located a downtrend you would then be looking to sell the markets. You won't just want to make a trade based on trend alone but you will combine it with other factors that increase the probability of a trade working out or not. A great exercise to go through to really start mastering trends is to flick through a number of markets and as you go through just write down whether the chart is in an uptrend, downtrend or no-trend. A chart is in no trend when it simply is not in an uptrend or a downtrend. An example of no trend would be if price made a higher high followed by a lower low. When there is no clear trend in the markets it's best to leave that chart alone and instead find a chart that is trending.
So start to gain experience in the markets by looking at as many charts as you can and identifying if they are in an uptrend, no trend or a downtrend. Look for the exact areas where the trends have changed and mark them down. You need to become an absolute master of trends so you can start to build a really solid foundation for your trading. In Part 2 we will take a look at support and resistance and how to identify these areas and then apply them to your trading.
Happy Trading!
Regards,
The TWP Team
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