The last article I posted I wrote about frustrations
and how to deal with them by taking a step back and identifying your feelings
and then find a more constructive way to deal with it rather than being
destructive.
Today I continue with the topic of stepping back but much in
a different way to the emotional side of things and more towards visualizing. As
you know trading contains a vast amount of visual interpretation in terms of
charting and if you want to improve your trading you have to master the art of
being able to see a chart and identify the degree of trendiness at just a quick
glance.
I found when I first started trading I would open up a chart
and out sprang indicators and all different types of information. Now it’s all
very well to use indicators in the assessment of a chart but it can be quite
overpowering on your processing side of things if you are unaware of the
different uses of each indicator.
I recall times when I would try and interpret a chart but began
to feel rather confused by the amount of information my mind had to process and
not knowing the relevance of it all. The key thing here is relevance. How
does one piece of data relate to another piece of data?
So I decided if I was going to understand the basics of a
chart I would need to cut out every other indicator and just use one at a time,
that way it would be as if I was using a microscope and studying the properties
that each indicator yielded which would help in my understanding in its
relevance.
After a while of thinking I decided it would be best to
begin with price. Why price you ask? Well it’s quite simple; price is the data
which is core to other data as indicators use price as an input to generate a
result.
One of the basic functions of price is in a given period of
time we are able to determine which of the participants had more influence on
the price in that period. For example if at the end of the day a specific stock
closes higher than its previous day we can conclude that there were more buyers
than sellers on that day and vice versa.
What we also know is that technical analysis is based on historical
events. What this means is that over time, investors and traders leave a
footprint on the market as the weeks and months go by. This in turn allows both
parties to determine in which direction the market has trended over a series of
time. Upwards, downwards or sideways.
What does this all mean when it comes to trading? As a basic
rule, you should always find the primary trend in the security you wish to
trade. If you are unable to find the trend, pull the chart out towards a greater
length of time. If you using an hourly chart pull out towards daily or weekly
so that you are able to trade in the direction of the primary trend. By doing
this you are allowing the market to take you to where you want to go.
If you ever get stuck on this concept think of it as a river
flowing. If you jump in the river where are you going to swim? Will you swim
against the current thus exerting more force on your body or will you swim with
the flow, allowing the flow of the water to move you to where you want to be.
I would like to thank everyone who read my first blog. I
hope it’s the beginning of many more to come. If you wish to email me you can
at cadetrader@gmail.com or if you
would like to follow me on twitter to get my latest posts you can too via @CadeTradeR
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