As more people are getting interested in trading in the stock market, the number of traders has increased subsequently.
But this does imply that all those new traders have become successful in trading.
The main reason behind this is that these traders do not have trading skills possessed by successful traders in the stock market.
The novice traders are mainly concerned about generating more and more profits from trading.
But this is not the key to successful trading.
Along with trading psychology and trading skills, a trader should be aware of technical analysis of stocks for making the right trading decisions.
Let us discuss 7 Unknown factors of Technical Analysis which will help you in boosting your trading skills:
1. Always Trade with the Trend:
The saying “Trend is your best friend in trading” by Warren Buffet is the most profitable and safe way of trading in the stock market.
Trading against the trend can generate profit but there is a lot of risks involved in it.
One should first identify whether the trend is up or down.
This can be easily identified by just drawing trend lines on the price charts as shown below:
One should usually buy the stock when the trend is up. When the trend reverses and becomes downtrend then it is better to start selling.
2. Using at least two technical indicators when analyzing the price movements:
All the signals generated by the indicator are not true. Some signals generated by the technical indicator can be false too.
Thus it is better to use two or more technical indicators to confirm the signals given by the other indicator.
One should not also use too many technical indicators as it may lead to confusion. One should try to limit to just 2-3 technical indicators.
3. Using multi time frame charts for confirmation:
The rule is that signals are more reliable given by the longer time frame charts.
If the trader is a short term trader then he should look at the charts of daily, hourly and 15 minutes and then accordingly make a trading decision.
Similarly, for a long term trader, he should look at the weekly, monthly and yearly charts and then take the trading decision accordingly.
4. Never reverse your trading plan:
A trader should always stick to his trading plan.
It is not possible that every trade you take up will generate profit only. Some trades may generate losses also.
Make a trading plan which can compensate for those losses. Examine those losses and try to avoid the losses in the future.
Make a track record and examine in which trades you are making losses and in which trades you are generating profits.
This way can help you in reducing your losses and generate more profits.
5. Always put a stop-loss and price target for every trade:
Most traders consider trading as a game of gamble but it is not taken seriously. It is a method of building capital.
One can reduce losses from the trade by putting a stop loss to their trade depending upon the losses which they can take.
Also, don’t be greedy when your trade is generating profits. Book your profit at the profit target set by you.
6. Do your Own Research:
Just don’t rely on the advice and stock recommendations given by the market experts, news channels, business newspapers, etc.
Before taking their advice, do your own research as every trader has its own way of trading.
Thus firstly do your own research and then make a trading decision.
7. Develop a trading setup:
Develop your own trading setup and choose your indicators wisely.
There are many indicators available nowadays but all of them do not serve the same purpose. Choose those indicators which serve your purpose the best.
It is better to develop a trading setup having a combination of both leading and lagging indicators. Leading indicators are those which predict future reversals whereas lagging indicators are those which confirm the reversal that has already taken place.
Thus develop a trading setup and also backtest it if possible. You can also take the help of experts who will help you in developing your trading setup.
They can help you in choosing the best technical indicators for making trading decisions.
One should not that before boosting your technical skills, you should have good knowledge of technical analysis. Learn about the different technical indicators and charts which will help you in analyzing the price movement and also help you in making trading decisions.
One should also remember that you cannot become an expert in a day. It takes a lot of discipline and dedication to be successful in the stock market.
One should also not trade in the stock market for entertainment, it is a serious business of building your capital.
Sakshi Agarwal is a post-graduate from a financial background. Her favorite topics of interest to write about include technical analysis and investing. She is currently working at www.elearnmarkets.com as a research analyst.