MASTERING THE TECHNICAL TOOLS

Yes, let us try to understand what is technical trading and the tools  which help us to understand the trading opportunities.  There are more than a dozen of tools available for technical trading and it is not necessary that you have to apply all the tools for a successful trade. You can master three to four of them and become a smart trader.

Support and Resistances.  Depending supports and resistance is one of the  widely used concepts in trading.  Every one have their own idea on how you should measure the support and resistance.  Let us first understand the basic.

Look at the chart below  It is a daily chart of Tata Steel. You can notice those red lines joining two tops(resistances) and blue lines joining two bottoms (supports).  You can also notice a red line converted into blue. When ever a support has  witnessed a break out, the support  automatically becomes the immediate resistance.  It is also applicable when price break out a resistance.  Many time you can see that a support or resistance is broken but with in a small time you will come to know that was not an actual break out and the market has tested the support or resistance levels. Some may call it as a false break out.

How can we understand the actual break out?  There is no definite answer for this question.  Some analysts argue that a support or resistance level is broken if the market can actually close past that level.  But you will find that  this is not the case always. How ever there are many other ways to be assure about the actual break out which you may learn latter.

Trend Lines. Applying trend lines are the most common form of technical trade.  It can show you the accurate place of entry and exit if it is drawn correctly.  Unfortunately most traders don't draw it correctly or try to make them fit  favoring  their way of wishful thinking  to analysis the market.

Drawing a trend line.  To draw a proper trend-line, you have to spot two recent  major tops or bottoms in the chart and then join the spots with a line.  You have to join the  bottoms to find out an uptrend and tops to find out a down trend. An uptrend trend line shows you the supports and a down trend line show you the resistances. See the chart below.

 

Now you may feel it is so easy to trade and you understood  all the secret of smart trading. No it is not that.  You have to master this first.

I am sure that you can make more than 50% of your trades as  winning trades if you master only these tools.   And ......... Yes,  it is much better than making your 90% trades as losing trades  by simply depending on tips by some one else.

Channels   No, we are not talking about  a TV channel like CNBC NETWORK18, so there will not be a commercial break!!!  Taking the trend line theory one step further will enable you to create a channel. What you have to do?  Nothing, just draw a parallel line to your uptrend or down trend lines.  Yes  you are  right, there you made a channel and it is an additional tool  for you to determine  good places to buy or sell.  Both bottoms and tops of channels  represent the potential areas of support and resistance.

Channels are always helpful in trend trading especially in a shorter time frames. It is used as a supporting tool in other types of trades.  It is a wonderful tool to assess the price actions coordinated with volume play. Try drawing a parallel line to the trend lines shown on the above chart.

Regards,