Technical Analysis for Trading
Traders need to have methods to identify entry and exit points on a chart to define where they have an edge. This is the basis of technical analysis.
Technical analysis can come in many forms, including chart patterns, candlestick patterns, technical indicators, or custom analysis done on a chart. I like to use a combination of all of these factors to analyze a chart.
Entering a trade in the right spot involves identifying your edge using technical analysis. Of course, we can never know the exact entry spot, but we can use technical analysis and past patterns to project reasonable results. This is all about probability and the likelihood of one event occurring over another.
This is a lot easier and more consistent when trading along with the trend, specifically on a chart that ‘behaves.’ That means the ticker typically follows a pattern of higher highs and higher lows (or the opposite) with similar moves. This makes those moves more predictable and easy to measure and makes following along with them more likely to work out.
What Doesn’t Work
Technical analysis works a lot better on charts that ‘behave.’ It is not very effective on tickers that are far too volatile tickers that lack a trend, and experience regular news-related moves that vary significantly. Charts in which technical analysis is not as effective include companies like biotech stocks, penny stocks, meme stocks, and certain crypto coins. These spaces in the market are made for gamblers, not traders interested in honing their technical analysis skills and coming up with a regular and consistent formula they can use. If that is your preference, there is nothing wrong with that, but it’s not the same as using technical analysis on a chart like Apple (AAPL).
Identifying Your Edge
One of my favorite methods of technical analysis is Fibonacci analysis. I learned this method from one of my most critical mentors, Carolyn Boroden, the Queen of Fibonacci. Symmetry is a Fibonacci method in which you measure previous moves to project potential support, resistance, or target zones. By measuring what the stock has done previously, you can look for a zone in which you can use to identify an entry or exit with an edge.
This is especially critical when the market is pulling back, like it is right now. Traders who know how to measure reasonable pullback zones can identify zones in which they may want to begin buying the dip. If one of those zones hits, holds, and then price starts trading higher, that gives traders a setup, or a reason to get into the trade at that point.
Want to learn more? Check out my video on using Symmetry below: