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Technical Analysis - have the right tools and discipline?

Technical Analysis of stock trading is an art as well as science. Wondering how? It involves expression of creative skill and imagination and hence it's an art. It's also a science because it encompasses systematic study of the structure and behavior of stock trading. Making money in trading doesn't need a scholar but it requires great discipline and right tools coupled with timely execution.

Just having right knowledge and right tools is not enough to be a successful trader, your personality plays a very important role in stock trading. These are the following traits you need to possess:

You must have market pulse: Ultimate aim of stock trading is making money. You cannot make money if you do not have a strong desire to make money; that's not enough, an orientation towards stock trading should be an addition.

Control your emotions: Do not panic during market crashes, do not get angry if you loose. Do not float in the air when the market moves in your direction either. Failure is part of the game. You cannot control market, so control yourself.

Great discipline: Wondering why discipline is required for stock trading?

Yes, it's one of the most important ingredients you need to possess to find a place among the list of successful stock traders. If you are doing it as a hobby, better leave it. You cannot make money if you are not professionally doing it. You need to have a good amount of time dedicated regularly for researching, watching, executing and evaluating your trades. Right plan, right strategy, right risk management tools will be very much handy to compliment the required knowledge and technical analysis tools.

Most importantly, right plan, strategy and tools will not elevate you if you fail to execute.

Focus and follow your plan: Avoid listening to the so called 'Brokers', media and friends and this will save you from falling into the pit. Just focus on your own plan and strictly follow risk management tools. If you do not have discipline to follow your own plan, you'll dig your grave.

The goal of technical analysis is to draw charts, analyze the past and predict the future. The assumption across the technical analysis universe is that stocks will move in patterns and the patterns repeat over a period of time.

Technical analysis is not foolproof either. Goal should never be gaining out of every trade rather it should be attaining net gains for all your trades for a fixed time period. "focus shouldn't be on winning every battle but on winning the war". Protecting your capital also plays a most important role. If you loose your capital, you can't sustain. Most successful trader in the world will achieve a success ratio of 60%-65%

Charts cannot tell you the cause for the movement but can definitely tell you the effect.

Right tools: keep your technical analysis very simple. There are whole bunch of tools available in the market to draw and analyze charts. Choose a reliable source because having right data forms the crucial part in chart analysis.

Once you are ready with the reliable source, next step is which indicators to use? Choose the tools to suite your style of trading. RSI, Moving Averages, Bollinger Bands, Cross Overs, MACD, Stochastics, Williams % R, Money Flow Index, OBV, Chaikin's Volatility are popular among traders.

You need to have good indicators to analyze both price and volume. Keep your chart analysis very simple. Choose 3-4 good price indicators which work for you and 1 volume indicator.

Choosing timeframe is again critical and can decide your fate. Long term trader looking at hourly charts can be disastrous. Choose the data as well as indicators to match your timeframe and style of trading. Chart type also forms an integral part of chart analysis. Few traders choose line charts, few prefer bar charts. Candelsticks are more popular because they can provide granular details.

Risk management: most naïve and even the experienced traders fail here. Protecting your capital in times of crisis should be your first motto, then comes gaining money. If your plan and trading style doesn't allow that, change it if you want to live longer. If you gain money in 9 consecutive trades and loose all of it or double the money gained in 10th trade, you should change your plan and style or quit trading.

Point is, you must have stop loss to protect your capital and your gains in your plan and strategy and strictly execute it. If your success ratio is high, you can afford to have a higher percentage of stop loss. In a nutshell, great discipline, right tools and timely execution is the key to fetch you rewards.

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