There’s no doubt about the fact that technical analysis gives you an edge in beating the odds of the stock market. There are several investors that analyze stocks based on the basics like valuation, revenue or industry trends. Technical analysis helps in predicting the movements of price by testing historical data, like volume and price.
This helps investors and traders bridge the gap between market price and intrinsic value by utilizing techniques like behavioural economics and statistical analysis. Here are few tricks that you should keep in mind.
- Don’t let the idea scare you
The space of technical analysis work chart shows the cost of security over time. The tools that you use are called indicators. You must have learnt charts in your school and the math behind the working of these indicators. There is nothing more complex than subtraction, addition, multiplication and division from grade school. Technical analysis, in a nutshell, can be simple. You shouldn’t make it more complicated.
- All indicators work
There’s no doubt about the fact that indicators are effective in recognizing both buying opportunities and warnings about when you should sell and move out. The world of technical analysis has brought forth several indicators and you can’t think of using them all. There’s nothing like one best indicator; all indicators work in a similar way.
- The key concept is to trade with the trend
In case the indicators prompt you that the security is moving upwards, purchase it. Even though you think that it stops moving upward, you should sell it. In case you don’t understand what is going, don’t trade. Never fall prey to the value trap. A high-value asset will return post a fall.
- Indicators may even fail
You have to accept the fact that all trading, including trading with the help of technical analysis, can at times lead to losses. You have to be prepared for losses. Since there are times when the market can go haywire, losses may arise all of a sudden but you shouldn’t behave in an abnormal way. Every indicator has the skill to lead you to a trade that delivers huge gains.
- Avoid trading if losses break you mentally
Before you learn trading with fundamental analysis, you should acknowledge to yourself that you’ll take losses. The main cause of losses are not always poor indicators but rather it is your inability to accept that indicators may be wrong at times. Technical analysis is about making money and never about proving that your indicators are right. You won’t make money in case you can’t control such losses.
- Use a minimum two indicators
One technical indicator is better than none. Only using the 200-day moving average could have saved your bacon in the bear market downturns. You can then choose a second indicator to get the confirmation impact which enhances your odds of a gain.