Technical analysis is a huge discipline which can help you successfully overcome the gap between intrinsic value and market price. It’s the essential tool you need to succeed. This subject, besides indicators and chart patterns, includes a variety of topics, such as risk management and behavioral economics.
You should constantly work on improving your technical analysis skills. This will help you identify trading opportunities in a quick manner. Likewise, you’ll be able to capitalize these opportunities using rule-based and disciplines approach. By enhancing these skills you’ll manage to maximize long-term risk-adjusted returns while realizing a profit.
1. Learn How to Draw Chart Patterns
The first step in improving your technical analysis skills is learning how to draw chart patterns. This means spending countless hours looking at charts, drawing trend lines, correcting and testing whether or not they work. You should soon start getting the hang of identifying chart patterns, support and resistance areas and how price reacts to these zones.
2. Practice and Develop Your Skills
With each skill you learn, you have to practice and develop it the more you can. You can try practicing and improving your skills through back testing or paper trading. Back testing can be used if you develop automated trading systems. With the help of back testing, you can see how certain rules would have performed using historical data. Fortunately, there are various platforms you can use to develop automated trading systems.
Paper trading is extremely useful for traders who don’t use automated trading systems but place trades on their own. With a demo account, they can practice placing trades and check their progress over time. With paper trading, it’s important to carefully track the performance and determine whether your strategy is successful.
3. Avoid Other Trader’s Opinions
You can discuss strategies in general with other traders or talk about your performance with your trading referee. But you should avoid other trader’s opinions regarding specific trades. You should always trade your trading plan your way. Stick to your own plan while keeping your stress levels to a minimum. The things other people, news, or websites say can trigger stress and make you perform poorly. Never second-guess your decisions based on other people’s opinions. You’ve created your strategy by spending hours and hours on research. So, let no one destroy that for you.
4. Get Help
You should get help and have someone close to you to make you accountable for your trading. This person is your trading referee and they will keep you accountable when you encounter some discipline lapses. Your trading referee will help you minimize these lapses and lower the costs of your mistakes. Your trading referee doesn’t have to be a trader at all, but they can be a friend, a coach or a mentor. You should share your plans with them and keep them informed about your decisions and performance. However, you should carefully select who your trading referee will be as they have to be able to provide feedback and be able to tell you straight away if you’ve gone astray. Nevertheless, if you can’t find such a person close to you, you can check online services, such as orbex.com.
5. Record Every Trade You Make
By recording and keeping track of every trade you make, you’ll be able to review your trades and learn from your mistakes. You’ll also realize what you can do to improve and on which things to focus more. Hence, you should take screenshots of your trades with entries, which will help you review your trades at a later time. Having one screenshot in certain market conditions which show you what you did and what was the outcome. If you’re a day trader, monitor and review your trades monthly, while if you’re a long-term trader, make sure you do this semi-annually.