5 TECHNICAL ANALYSIS BASICS FOR BUILDING A PROFITABLE STRATEGY

Every skilled trader knows that they need to practice at least some basic strategies in order to show profitability throughout their trading career. Going into the markets without a plan is not an option.

The bigger question is what type of strategies will they specifically use to get the results that they need? We are going to look at a few options for strategies that traders can use when they are trying to figure out how to proceed with their mission to be profitable in the markets.

01 MARKET ENVIRONMENT

Look at the asset that you are considering trading and try to determine if it appears to be trending or ranging. In other words, is the asset you are trading moving around a lot, or does it seem to be stuck in a familiar pattern at this time?

You should review this because you want to be sure that you are trading only in market conditions when you can actually make a profit.

For most people, this means trading when the market is trending one way or the other. After all, they need to try to grab on to the momentum of the trade so they can make their strategies work. However, there are some who have found ways to make even a ranging market work for them. The fastest way to determine the environment of most markets is to use your various indicators to see what has been happening. If the indicators show that the market is trending or ranging, then it is to your advantage to trade according to what the market seems to be saying is happening.

02 MOMENTUM

There are complex mathematical formulas that can go into determining what the momentum of a given trade will be. People sometimes look at how a certain asset is performing against how it was performing before to try to figure out where it may be headed next. This may or may not be the most scientific way of looking at things, but many people believe that it is useful because they see the momentum of a trade as a good indicator of what will happen next with it.

They want to get in on the action when the momentum starts to take hold, and they want to ride the waves of that momentum to greater profitability.

Obviously, there comes a time when the momentum of trade starts to break, but you can do pretty well for yourself by simply following how the momentum of a given trade is going and try to take advantage of what will happen next.

03 INFLECTION POINTS

You can think of inflection points like the inflection points you might have in your personal life. Perhaps there is a time when you reach a fork in the road of sorts in your life and must make a decision about where you will go next. This is like inflection points in various assets. They hit a certain level and then they must choose if they will continue to move in the same direction or if they will turn around and make waves in the other direction.

Inflection points are often found by using tools such as the Fibonacci retracement tool and even by drawing your own support and resistance lines. You will want to see how the assets react to the various levels that you draw for them.

You will likely be pleasantly surprised when they make a move one way or the other at or near the point that you draw. If you are talented at how you use inflection points, you can get a good sense of when you might need to pull back from a trade or when you need to add more to one.

04 VOLUME

Is the trade movement that you are seeing right now reflective of something bigger going on?

How would you know for sure if this was the case?

These are the types of questions you need to ask yourself when reviewing the various factors that go into making a trade something that you can reasonably assume is the real deal or something that is just a fake-out that you need to ignore.

Many people use volume as a great proxy for how real a certain movement in the market actually is. If the volume is high, then it is believed that the move is reflective of something bigger going on in the market.

If the volume is low, then some believe that the movement that they are seeing is nothing more than a faction told by the market based on incredibly light volumes that don’t mean much. It really all depends on how much conviction there is behind a movement, and volume is often used as a proxy for conviction in a trade.

Thus, it is something that you want to pay attention to when making your own trading selections.

05 TIMING

Creating the perfect trade means timing when you will place that trade as well. If there are certain periods of the day when an asset tends to consolidate, you might look at this as your opportunity to get involved with the trade at that time.

After all, you could potentially snap up some of the asset at a very reasonable price if you are willing to wait patiently until it hits what you need it to hit before moving in. You can potentially create a nice return for yourself by simply being patient and waiting for the market to move in your favour. Don’t get overly anxious to get involved and end up making a dire mistake that could easily have been avoided.

CONCLUSION

Every successful trader must start by learning the basics of the market.

You cannot start to build upon your wealth of knowledge of the market until you have had the opportunity to learn the basics that make it work.

If you have a toolbox of useful tools such as the strategies mentioned above when you go into your trading space, then you should be in great shape to trade successfully over the long term. Make sure you take every tool that you can into combat with you, and always try to learn something new from the mistakes that you make along the way.

There is not a trader on Earth who hasn’t made some mistakes in their trading, but the best traders learn from them and move on.