Using Technical Analysis in Your Stock Trading
In my years of stock trading, I’ve come across countless traders who had no real concept of what they were doing. It’s ok, everyone starts somewhere, but if you’re trading stocks, you’re going to need a method, and basically it’s going to come down to understanding why a certain time is the right time to buy or sell. Possibly the most popular ‘method’, and I use that term loosely, that inexperienced traders like to use is picking and trading a company because they use the product. Yes, it’s great that you like you like to drink ABC’s soda pop or you’re a fan of XYZ’s shampoo, but that doesn’t mean it’s time to buy.
No matter what stock you’re talking about, there are periods where it’s overbought, periods where it’s oversold, and times where it’s neither. Wouldn’t it be nice to at least be able to spot when it’s overbought, so you can avoid buying then? Sometimes it may be downtrending, uptrending, or trading sideways in a channel. Wouldn’t it be nice to spot when an uptrend has just begun, that way you can feel confident in your trade? Just because you like a company or it’s products doesn’t mean you just go out and buy the stock without analyzing the situation first. If only there was a tool to use that could help you examine the situation and give you some insight as to whether or not it’s a good time, or at least not a horrible time, to consider buying. If only……. Ok, I’m going to present you with just that tool, which is technical analysis, but let me offer a disclaimer first. This is not a magic crystal ball. This isn’t something that I’m claiming will make you the world’s greatest trader overnight. What this tool is meant for is to offer the trader an opportunity to skew the odds of profiting into your favor. Whereas the typical Joe Schmoe is going to rely on dumb luck, seasoned traders are going to use charts to find setups with better than random odds, offer structure to their trades, and essentially give them a road map for their trading journey.
With enough experience and training, you’ll be able to use a chart to spot certain setups and patterns in the price action, and you’ll use those to your advantage. You won’t find the holy grail that offers you a winning trade every time, but you can certainly find setups and chart patterns that may yield 60% – 70% winners. If you’re able to learn what those are, consistently spot them with ease, and have the discipline to stick to those specific plays, you’re one step closer to becoming a consistently profitable trader. Just like most any other skill, it’s not something you’ll be able to pickup and master overnight. Having the proper mindset is going to be imperative. If you’re looking at trading as a get rich quick scheme, you’re destined for failure. How do you think an aspiring doctor would do if he believed he could operate in a few weeks or months? If you approach trading the same way someone approaches a profession like doctor or lawyer, you’re going to be in a much better situation for succeeding. Expect to put in years of practice and studying, and plan on learning many lessons the hard way. With the proper mindset and tools, like chart technical analysis, you can succeed at trading stocks just like any other profession.