You should watch our video on understanding technical analysis basics. Also we recommend you read below to get a firm understanding on charts and why they matter for traders.
It's important to learn about the technical analysis basics first before delving into the complicated world of trading. If you want to learn technical analysis of stocks, you're in for a bumpy ride. However, using the most effective technical analysis tools, and locating TA patterns help give you the overall big picture before entering into a trade.Like any good person who works in the trades, you need to be able to analyze the job before you take action.
Before we begin, let's address the elephant in the room. Is TA really all that it's cracked up to be? Isn't the fundamental analysis of stocks the key to becoming a successful trader? Or, is technical analysis king? We'll answer that below.
Can a trader really predict what a stock is going to do using TA patterns and using technical analysis tools?
Let's begin by stressing that no matter how much technical analysis basics research that someone does, there's absolutely no way anyone can predict what a stock is going to do. You can only predict what's probable to happen, based on the indicators, price action, and pattern. Then trade what's happening and remember, only YOUR entry and exit matter and that you are managing risk.
Anyone that tells you something otherwise is either not experienced enough to know this, or outright lying. Or perhaps, they might have some insider trading knowledge which is illegal!
All it takes is one trader to completely change the movement of a stock. We call this the butterfly effect. It could be a major seller that pops up when bulls are rushing in. Or a major buyer when everyone is selling. Because the market is made up of supply, demand, and the chaos of one vs the other...the market is NOT 100% predictable. But...there is hope...
The stock market is a collection of traders and computers from around the world buying and selling stocks. It's one big auction house (hey kinda like Ebay!) The stock market can't hurt you. It's not out to get your money or leave you penniless It can't read your mind or sneak into your brokerage account and get you to do things that you don't want to do.
It may seem like the market is out to get you at time. However, the reality is that we're in control of every single trading decision we make.
Every trading decision made leaves a digital footprint. This footprint forms candlestick chart patterns such as bull flags, bear flags, head and shoulders, cup and handles, ascending triangles, double tops, double bottoms, and many more other patterns. Sometimes there will be multiple patterns within patterns! Take our penny stock trading course.
Traders are creatures of habit and they are hunters of technical analysis patterns. When these technical analysis patterns form, they put the statistical odds in your favor when entering the trade.
All that is required to increase the probability of a good trade is to chart your stock properly, and pay attention to the trends. There are no guarantees, and that's why proper trading risk management and always using helpful TA tools is critical.
We like to use the phrases "Always Chart Your Stock!" And, "Cut Your Losses!"
Essentially, every trader leaves a footprint. Even the people who use fundamental analysis to make their trades. So, you can get into the minds of fundamental traders by watching the technical analysis patterns that they leave behind.
We aren't saying that technical analysis of stocks is better than fundamental analysis of stocks. We are suggesting that they have a symbiotic relationship. They complement each other. Knowing both is a great thing.
We always tell our community members to do proper research (due diligence) before entering into any trades, and this includes using both the technicals and fundamentals. Your odds of a successful trade go up if you use both in harmony!
When hunting for patterns it's critical to use good charting software. We recommend using ThinkorSwim or StockCharts.com. There are many great charting companies out there, but these are our personal preference.
Technical analysis tools are essential to use to hunt for these technical analysis patterns. Trade Ideas is our most recommended stock screener. Read our Trade Ideas Review if you'd like to learn more. If you're on a budget then Market Club and Barchart are other popular technical analysis tools.
If you're saying to yourself, this all makes sense, but I have no clue how to do the technical analysis basics. Or even fundamental analysis for that matter. Don't worry, we've got you covered! We have $3,000 worth of free trading courses, a free live trading room, and a great community for support to help you along on your journey.
The links to these helpful resources are below.
So, back to technical patterns. Candlesticks are the most popular trading indicator to use when charting your stock. Candlestick patterns are the digital footprint that's left behind by the battle between the bulls and the bears.
Check out our recommended stock market books if you need more help with learning candlestick patterns. Also, take our free online trading courses.
We'd say that candlestick patterns are the first trading signal indicator you’d want to look at, followed by learning how to draw and support and resistance levels. They have a symbiotic relationship. Finding support and resistance lines will give you a good idea of the areas where the buyers and sellers might come in before entering a stock.
Moving average lines are next up on deck. Simple moving average and exponential moving average lines show key levels of support and resistance lines on charts.
Looking to learn stock trading? Take our free stock training courses to help you get started. Also check out our recommended stock market books if you need more help with learning candlestick patterns. While you are at it, take our free online trading courses.
Whether you're into penny stock trading, day trading techniques, dip buying stocks, gap trading, swing trading strategies, options trading strategies, or another strategy, then learning the technical analysis of stocks will be essential to your success as a trader.
We aren't gonna lie...learning the technical analysis of stocks can be an absolute beast to learn. It takes a lot of time learning stock market analysis and technical analysis basics. That's why it's really important to invest a lot of time into studying and practicing trading in a simulator before trading with real money.
We provide our community with an abundance of resources that will help along the trading journey. But, it's up to you to implement what we teach and preach. Again, stock market analysis is hard to learn at first. However, just like anything in life, it gets much easier if you keep at it.