By reading through the last 18 chapters, we have gained knowledge on a variety of topics from Technical Analysis. You can now begin trading with a better understanding of this field. In this chapter, our goal is to assist you in recognizing potential trading opportunities.
I have drawn on my past trading experience in constructing the advice contained in this chapter.
To start off, ‘Charting Software’ is a must-have for anyone that wants to analyze stocks. It assists in viewing stock charts and assessing them. Undoubtedly, it is an essential tool for a technical analyst.
A multitude of charting software is accessible, with two of the most widely used being Metastock and Amibroker. Many technical analysts opt for one or other of these packages that come at a price and require a license to use them.
You have lots of options when it comes to online charting tools – Yahoo Finance, Google Finance and most business media websites will provide you with these. But if you’re looking to become a technical analyst, my advice is to get yourself a good charting software.
The charting software is analogous to a DVD player; once it’s set up, you still need data in order to access the charts. This data is supplied by data vendors.
If you’re looking for dependable data vendors in India, the internet is a great resource. Be sure to let them know which charting software you are using, as the data feeds must be in a format that it can read. It’s important to remember the feeds come at a cost and, once you register with one, you’ll get all the past information upfront, followed by daily updates from their server.
Purchasing a new version of a well-regarded charting software like Metastock or Amibroker can be pricey – it can cost upwards of Rs.25,000/-, with an additional Rs.15,000 to Rs.25,000 for data feeds every year. However, older versions of this same software typically cost much less.
What timeline should be selected?
Picking an appropriate timeframe while seeking out profitable trades can be a difficult task for someone just starting out in technical analysis. With plenty of options, ranging from one minute to yearly, it’s no wonder why many traders feel overwhelmed.
In line with the general principle, longer time frames tend to offer more reliable trading signals. For example, a ‘Bullish Engulfing’ pattern on the 15-minute timeframe tends to be more dependable than one on the 5-minute timeframe. So when selecting a timeframe for trading activities, it is important to consider the length of your intended trade.
What is the desired duration of your trade?
If you’re just beginning or aren’t an experienced trader, a good idea is to start with positions you’ll hold for a few days. This type of trading is usually known as ‘Positional’ or ‘Swing’ Trading. A typical swing trader will keep the same position open for several days – the best lookback period for them tends to be 6 months up to a year.
A scalper is an experienced day trader; typically, they use a 1-minute or 5-minute timeframe.
Once you become comfortable with extended trades, move on to day trading. After working hard and remaining consistent, this transition will not take long.