Technical Traders - How to be a Successful one
For starters, technical analysis is one of the most complicated topic. This is mostly because of the mathematical calculations behind the indicators.
For instance, the relative strength index (RSI) comes from a complex mathematical formula involving smoothed or modified moving average (SMMA) and exponential moving average (EMA).
However, as a trader, there is no need of understanding the complex mathematics.
Technical indicators have been included in most trading systems. For a trader, all you need to do is to place the indicator in your chart, interpreting it, and then placing a trade.
Here are the ten secrets of successful technical traders (in no particular order).
→How to be a Master at Technical Analysis
Lessons you can learn from Successful Technical Traders
#1 - A Master of One, Not a Jack of all Trades
There are hundreds of technical indicators available in the charting systems. While it is important to understand most of these indicators, the fact is that you should only use a few of these indicators.
A problem most traders do is to combine 10 indicators in one chart. This usually presents them with a dilemma on the decision to make when placing a trade.
For instance, when sign 10 indicators, what decision will you make if 5 indicators show buy while 5 show sell? Using two or three indicators can help you make the right decision.
#2 - Test the Indicators
After identifying the indicators, you will be using, We recommend that you spend a few months dedicated to testing them. Testing the indicators will help you come up with the best parameters to use and in what timeframes.
A mistake many people do is to hurry and implement what they read without testing and backtesting.
For instance, they will read that an ADX level of 35 is a strong trend and then enter the market based on this.
Because of this, we provide to you a Day Trading Platform.
#3 - Always Combine Technical with Fundamentals
Technical indicators should always be combined with the fundamental tools. This is because the market moves because of a number of factors.
For instance, when there is an economic data release, the technical indicators will not provide an accurate prediction. Also, some technical indicators such as RSI will not work during sideways market.
Therefore, it is important to know the best type of market to use technical indicators or not.
#4 - Use Multiple Time Frames
As a trader, you can trade different time frames from 1 second to years. The technical indicators used in multiple time frames will often result to different indications.
For instance, the Simple Moving Average (SMA) for a Gold chart could signal Buy while the 5-minute chart will signal Sell. A perfect condition - which is not common - is when all time-frames signal the same thing.
It is important therefore to compare what different time frames are signalling.
→How to Use Multi-Time Analysis When Trading
#5 - They Rely on Indicators, not the Naked Eye
This is one of the most common mistakes we see around. Many newbie traders are deceived by their naked eyes and ignore what the indicators are saying.
They open a chart, see its going up, and then open a buy trade. The problem happens when there is a reversal which could easily be indicated by RSI or Average Directional Index (ADX).
#6 - They Accept they are Wrong
Successful technical traders know that they are never 100% accurate. This acceptance is very important because it gives them an opportunity to trim their losses. In trading, no prediction is ever accurate because there is no perfect trader.
In the past, we have seen thousands of hedge funds shut down because of poor performance. As a trader, you should accept early that the thesis has failed and trim the losses.
→How to Start Trading Again After a Big Loss
#7 - They Journalize
A day trading journal is a very important that most successful technical traders have. The journal is important in preventing future losses. Warren Buffet, though not a technical trader has claimed that he puts down on paper reasons for buying or selling a company.
Can you see a good reason to avoid it?
#8 - They Plan every Trade
Successful traders understand that trading is a complicated business, and a simple mistake can lead to significant losses. They therefore take time to plan every trade that they get into.
They plan the entry and the exit positions. In every trade that they enter, they plan the expected return either on the upside or on the downside.
→Learn when to enter and exit a position
#9 - They Chart
Today, you can find technical signals from different sites. Investing.com does technical analysis and provides the signals in their website. This is good, however successful traders do the charting themselves.
#10 - Less is Better
As we previously told, the less the ‘assets’ you trade the better it will be for you. Another dimension is in the number of trades you open.
Many new traders believe opening many trades will make them more money, but in our experience we have learnt that the more trades you open, the more losses you will make. Our strategy is therefore to open a maximum of two trades per day.
#11 - Never Risk too much per Trade
The lot size you decide to use per trade is very important. The higher the lot size, the higher the risk you have in your trade.
To protect your account, you should never risk too much money per trade. By risking a lot of money, you will be subjecting your account to tremendous risks. Remember, in trading, you can lose or make money: it’s a game of chances.
#12 - Protect your Trades
Successful Technical Traders always protect their trades. Stop losses and take profits are very important tools to limit the amount of loss you can make per trade. You should make it a rule that you will never open a trade without a well-calculated stop loss.
Successful traders spend their time reading and watching financial news. Bloomberg, CNBC, and Wall Street Journal (WSJ) are our best sources of financial news.
In these mediums, there are many experts who give their opinion on a daily basis. While successful traders do this, they understand the need for making decisions independently.
You should never open a trade based on the analysis of another expert. Doing this will end tragically!
Useful external links to be a Successful Technical Traders
- Learn new Skills from Successful Technical Traders on Investopedia
- Discover 3 Critical Skills from Successful Technical Traders on SkilledUp