Technical Trading - Learning The Laws Of Successful Investing
Although it can be complex for the new trader to understand
, technical analysis is really one of the best methods for navigating the often chaotic world of the stock market with confidence and success. Just like any proven methodology, all the subtleties of technical trading can be boiled down to just a handful of simple laws that, when followed correctly, will help to steer traders away from risky trades, and toward the securities that are most likely to perform well in the near future. Patience and common sense are imperative attributes of any would-be investor, and when combined with these basic rules, they will help you to develop the experience you need to make a profit.
One of the first rules of technical trading that you should follow as a new trader is to map out the trends taking place within a certain security's history or within an entire industry. These trends are easiest to spot on long term charts, so if you are a new investor, it can be helpful to take a look at the archived charts of the past few months or even years. When you look at the chart for a longer period of time, the trends and patterns will be more pronounced, and easier to spot for the untrained eye.
Once you have become comfortable evaluating long term charts, the next rule of technical trading states that you should look for specific short, intermediate and long term trends, and follow them as they move and change over time. It's important for you to always trade in the direction of the trend, meaning that if the trend is going up, it's more popular to buy stock, and if the trend is down, it's more popular to sell stock. Many people encounter risk situations when they try to disregard the direction of the trend they've spotted.
Another thing that's very important for all technical trading investors to engage in is looking for the confirmation signs that will help you to determine which way the trend is moving. If you suspect a trend is positive or negative, look for the volume and open interest indicators that will confirm what you think you've seen. Volume usually rises right before the price follows suit, whereas a decline in open interest is usually a strong signal that a trend might be nearing its end. Using these tools to slow down your trading will result in more successful investments.
by: Aaron Livingston
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