Getting Started with Technical Analysis

When we start out to learn something new, where do we first head out to? The internet. The internet is filled with knowledgable content if you wish to use it for that purpose and when it comes to learning Technical Analysis, then too there are no surprises. If you’re a beginner who’s just heard the word Technical Analysis then look no further. ‘Getting started with Technical Analysis’ will provide you with a detailed guide on learning technical analysis from scratch.

Start with learning about components of the chart

Be it any professional intraday trader, they always know their charts before entering into a trade. A chart is a graphical representation of the price action datapoints. Charts are the only components that can help you analyse charts quickly and accurately (all by yourself).

Not to forget if you can understand the physcology of the market (whether the price is going to up or down) by looking at the chart itself!

Free online resources to consider:

  • Learn CandlesticksLink
    • The first component that you should learn is Candlesticks. These are sort of the primary components and without understanding what a candlestick is, you cannot just learn the market psychology or technical analysis.
    • Once you are done with understanding what candlesticks are, the next item to learn is about candlestick patterns. No matter what strategy you’re using, just knowing about the candlestick patterns can help you as a confirmation signal. Thus aiding you in taking only fruitful trades and preventing you from the bad ones. You can find various free online resources on this topic.
  • Time FramesLink
    • Once you’ve understood what candlesticks are, the next topic is to learn about different time frames. Why? Well, time frames are your best friend when it comes to intraday trading/ swing trading or just investing. For example, by switching over to a longer time frame you would be able to identify the resistance/support levels (covered later) and the current trend of the stock.
  • Indicators
    • Indicators are widely used and heavily relied on by some traders. In short, Indicators give you signals based on historical data. The fact that they are based on past data makes them very accurate and if you really know how to use them, you can create a winning strategy for yourself too.
    • Click on this link to learn more about indicators.

Learn about basic principles of Technical Analysis

Now that you are familiar with the charts, you might want to learn the basics of technical analysis. For example, you should clearly know what are and how to draw the support and resistance levels on the chart. There are a lot of video series/tutorials on youtube for this. However, we found this version of the explanation quite easy to understand.

Once you understand the basic principles of technical analysis, do learn the patterns that the candlesticks form. We recommend checkout out Sasha’s channel on Youtube (link).

Practise reading the charts before you trade

One problem that arises when you’re soo hooked into reading charts is that you want to practice your analysis instantly. Not that it’s a bad thing, however, we wouldn’t adivce you to use real money just yet.

What you can do is – do paper trading. Paper trading simply means that you trade with virtual money and make/lose virtual money only. All of this is for free and you don’t need to bother about spending cash before you begin to trade. We recommend using TradingView’s Paper Trading feature for this.

Find a source from where you can confirm your analysis

When you’ve paper traded for quite some time and you’re confident that you earn some real cash in the market, it is time to take the leap. All you need to do is open an account with your broker and then get started placing orders.

It is often beneficial to verify your analysis with some other sources before actually taking up any position. Be it from a renowned technical analyst that you follow on social media or software as a service that you’re subscribed to.

Understand that Profit and Loss are part of the game

An often missing component when learning about technical analysis is that people forget about their money management strategies. They only focus on drawing lines on charts and defining levels.

Money management simply means managing your risk apeptite. So that if you book a loss, you can have plenty of backup fund to trade with the next day. Why the next day?

For beginners, it is often recommended to do only one trade per day. This helps a trader to conserve their booked profit and not do overtrading. On the other hand, if you’ve booked a loss then there is a high chance of you taking up another trade to compensate for the lost amount. The term for this is revenge trading (don’t do that).

There are various other free online resources that can teach you more about such methodologies that can help you strategise and plan accordingly.


Lastly, although there are website or articles that have blatantly put in links to books and long articles for you to read, we think that by simply understanding the basics (mentioned above) can set up your fundamentals pretty straight.

You can move to reading books when you thoroghly know the basics and can identify which piece of information is useful and which is not..

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Best trading strategy if you’re using less capital or have a small trading account

It is very common nowadays (due to the internet) many people are opting to learn about stock markets and the profits and the losses it can give. While most of the new traders lose money instead of booking some profits, if you’re a person who’s just starting out and trying your hands to make some quick bucks without ‘risking it all’, then read on!

Tips

The sections in this articles will help you strategize and build up your trading plan so that you can last in the market for a long time. Let’s start with tip number 1.

Think of trading as a survival game

If you could look at the bigger picture, trading is just a survival game in which you participate with the hopes of being at the top and defeating all the obstacles that come your way. The only difference is instead of your life, it is your money which is at risk.

Hence, your primary objective should be to avoid losing your initial capital. What this means is that let’s say you start out with a $100. You trade for a month and now you have 3X of the initial amount. This is $300. Let’s assume that the next month you lose all your profits and even some portion of your initial amount. Finally, at the end of the month, you’re left with 50$ in hand loosing out 50% of the amount you initially invested.

Do not Day Trade

Let’s be honest. You cannot be an overnight millionare with just 100$ invested. The reality is that trading is a process rather a one time flick. You earn some and lose sum and at the end of the day, all you should care about is about the losses rather than the profits.

The reason to not day trade is because of the fluctuations in the price (volatality) which makes every 9 out of 10 investor/trader loose their money. Instead, you should focus on Swing trading.

Swing Trading

Swing trading involves you taking up a position and holding it for a day/week or a month. What this gives you, is an exposure to the market. With swing trading you could have been invested while at the same time testing out your strategies and predicting the price. It also makes you feel responsible and aware of the amount you’ve invested in buying/shorting that stock. Because its only when you’re in the game, you start to notice all the rules and the tips and tricks.

Swing trading also gives you the benefit of spending some time to study the market. Day trader requires more concentration on the specific time frame and requires a trader to be aware of the trend the specifically the price action. With swing trading you could look up the daily chart, analyse the trend and make some notes on your strategies and predict where the price action would go next.

Not to forget, the point is to stay in the game for as long as you can and learn about how the market moves.

Pick up an initial strategy

Now that you’ve decided to do swing trading, it is time for picking up a strategy to take your positions. Remember to not invest in the market randomly. That is a few novice traders buy a script when they see the script’s price falling. This is a very common mistake and can result in huge losses as it can be that the stock is already in a downtrend.

We recommend using this strategy to start off with and later build up on this to increase the accuracy and book profits and avoid losses.

Conclusion

We decided to write a dedicated blog post on this as we figured that a lot of users who’re registered with us are beginners. And as trading is a never ending ‘learning’ journey, we hope to have provided value to professional traders as well through this article.


Psst- We’re working on launching our product. If you’re interested to test it out please subscribe with your email id on this page.

We hope you like this article. Do follow us on Twitter for more updates on Technical Analysis and money management.

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