There is no doubt that technical analysis is one of the most popular when we talk about online trading. However, even though there are a lot of methods using technical analysis which can be profitable in the run, still, most of the traders fail to understand it properly.
With that being the case, we want to explain a bit how someone could start using technical analysis in such a way that in the long run one could constantly develop skills and achieve the desired results.
Since technical methods are very popular in the forex market, we will stick to it and leave other markets for a future material.
Each technical indicator has its role
There is no indicator better than the others and you will find weak points for each one. What is sure, though, is that each one of them functions in a different way and thus you would need to test them (preferably on a demo account) in order to experience yourself various situations and notice how a particular indicator behaves.
The issue of time frame
Whether you should use a small or big time frame for technical analysis is another dilemma. From a statistical point of view, most of the strategies are performing better on higher time frames, but also, an experienced trader will manage to use them effective on small ones, as well.
Since this is a material for those who are at the beginning, you should pick up 3 different time frames (like 1h, 4h and daily, or 30min, 1h and 4h) and learn how to work with them jointly. This system was described in greater detail in Alexander Elder’s book “Trading for a living”, which is a good lecture if you want to go deeper into the online trading knowledge.
Not too many indicators
An overcrowded chart will stop you from seeing some of the price particularities. Instead of that, try to stick to around two indicators that you like and you have understood the best. Maybe you want to use Bollinger Bands and Stochastic, or maybe you like Fibonacci levels the most. It is up to you to choose the one that you like the most.
Don’t forget that there is no magical technical indicator and the key is to find the things that work the best for you. There’s no point for searching the “Holy Grail” because you will never find it.