Learning about technical analysis indicators and applying it on the charts is easy. But do all the traders beat the earnings or gain extraordinary profits from the stock market. The answer is no. Not everybody has those trading skills. But one can develop those trading skills if he/ she maintain certain rules and disciple in his/her trading. There are some technical analysis skills that can help you in better trading. Let us discuss them in detail.
Use At least Two Technical Analysis Indicators
When we use indicators of technical analysis on charts we should use the combination of at least 2-3 indicators. The best combination of technical indicators can confirm the movements while using single indicator may give a false signal. We could avoid the false signals by confirming the signals with the price action also other indicators.
We should choose trading indicators that complement each other, instead of those that generate the same signals. For example:
We should not use Relative Strength Index and William % R together as both are leading indicators and both identify overbought and oversold regions. We can use MACD as one of the indicators as it is a trend identifying and lagging indicator.
You can also read: Two effective trading strategies using Williams % R
Identify Technical Analysis Indicator for crowd sentiment
Technical analysis indicators have different objectives. Some tell us about the overbought and oversold zone, some will tell us about the trend and some indicators tell us about the strength of the trend. There are some best technical analysis indicators which tell us about the crowd sentiment. We need to identify those indicators.
For example, we can use the Money Flow Index (MFI) which tells us about the inflow and outflow of money from stock when used with volume. It is an oscillator which becomes when the buying pressure increases and negative when the price decreases that is selling pressure decreases.
Learn from Market Experts
Why most traders use multiple time frames for confirmation
We should always use different time frames to confirm the buy or sell signal. When we are not sure that the signal generated by the technical analysis indicator is giving us the right signal we should put the same indicators in different time frames, such as 15 minutes, hourly, daily. For long-term investment, we can also check with the weekly and yearly time frame.
You can also read: How to trade using moving average on different timeframes?
Trend is your Best Friend in Trading
One of the Warren Buffet’s principles is to trade with the trend and that actually is the correct and profitable way to trade. We should first identify the trend whether the trend is upward or downward. There are many trend identifying indicators which tell us about the trend such as moving average. It identifies whether the trend is uptrend and downtrend and according to that we can make buying and selling calls.
In the chart below, we have taken an example of SMA 89, and according to trend we can buy and sell the stock:
Importance of Market Timing
Market timing is an important factor while trading, the timings of entry and exit is very important. We can make profit than the others if we enter and exit when everybody is still in the trade. We should predict the early signals given by technical analysis indicators and act accordingly.
Use fundamental analysis for stock selection
Fundamental analysis is like the background check of a security for short term trade. Investors usually use fundamental analysis for long term investment but not for trading. We can see how security has performed over the years and then we can select the stock to invest or trade. But we cannot generate buying and selling signals through fundamental analysis. Buying and selling signals can only be generated through best technical indicators for short term trading.
How to manage your trades?
Market movements are unpredictable. We should always give a stop loss to our trade while buying or selling the security. Sometimes the trading technical indicators give us a wrong signal. We should not lie about our track record. In stock market there are both ups and downs. We should manage our risk. If we examine our losses, we may find a solution to avoid losses in the future. We should also examine our gains; we may find a method to increase our gains.
Never reverse your trading plan
As we have discussed technical indicators does not always give right signals. When we enter into trade there is no chance of reversing and controlling the trade. But we can control our emotions. When we put stop loss on our trade we are as it is reducing our losses. We should not be emotionally attached to our trade and accept the losses. We should establish our trading rules to overcome the losses we made.
Don’t trade if you are afraid of losses
When we are trading stock market losses will happen, we cannot control those losses. When we gain then we are so happy that we tell everyone about our strategies but when we make loss we keep quiet about it and we will bad from inside. We should control that emotion and establish some strategies to overcome that loss. We should never trade without a stop loss. If we cannot digest those losses we should not trade at all.
Plan every trade and never trade without a profit target
Before we jump into a trade, we should make a full research and plan the trade accordingly. We should check the support and resistance level. We should calculate the maximum losses we can make this in trade and accordingly put a stop loss. We should be ready for the consequences. We should also calculate the profit target on that particular trade.
You can also read: A comprehensive study on Support and Resistance
Trading is not a game of gamble. This is the biggest mistake many traders make while trading in the stock market. It is a business with probability of income and losses. Using long term technical indicators traders can build up the capital for future investments.
Caution: Expert’s Advise
There are many advisors especially in India who give various forecast on which stock to buy and which to sell. Before putting their advice intro trade, we should study the reason on what grounds he is making the forecast. We should not blindly accept their advice. We should study the mcx charts with technical indicators and confirm the expert’s advice. Everyone interprets the same indicator in a different way.
“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
Importance of Diversification
We should never trade in the same sector or security. In the stock market, not all the sectors perform same. Same one sector is performing well while the other sector is not. Therefore we should diversify our trading into different sectors. As a result, our risk will also get diversify. We may gain from one sector and suffer loss from the securities in the other sector. That way our losses will reduce.
For example, we have put all our money in the oil sector. Suddenly the prices of the oil increased which led to decrease in the prices of the securities of the oil sector and on the same day the prices of the stocks of FMCG sector reached a new high. Now we are in guilt that why did we put all our money in the oil sector.
Choose the Indicators Wisely
There are many technical analysis indicators and many combinations of the same is possible. But it is impossible to analysis all these indicators for a single trade. We should establish our own trading system and analyse those indicators of technical analysis
which we understand and we are comfortable with.
You can learn more about technical analysis by taking NSE Academy Certified Technical Analysis course
Don’t Underestimate Yourself
It takes time and dedication to become expert in trading. But becoming expert in trading is not impossible. We can make extraordinary profits from the stock market and also beat the index average return. We just require discipline and dedication to beat the professionals of the stock market
Don’t trade for Entertainment
We are not trading in the stock market for amusement; we are trading to make some money. The main purpose of trading is to make money. Trading in stock market is not a game. If you want to play a game there are many gaming applications now available on your mobile.
New trading technologies and ideas keep on developing every day. But one needs to understand which technology and which trading indicators he/she is comfortable with and apply accordingly. If the trader maintains discipline in his life then he has chances of making extraordinary profits.