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Technical Analysis to Trade

Why Using Technical Analysis to Trade May Not Be the Smartest Choice according to Andy Richardson

If you’re a day trader you shouldn’t just rely on chartists technical analysis for trading. So many CFD traders use too many complex technical indicators these days that I believe most seem to have lost their way and don’t understand that the biggest indicator of them all is simple price action.

Figure 2

Figure 2

Did you know for instance that the inventor of the Elliot Wave Theory, died penniless? The only money he ever made was selling it to people. I also believe that Fibonacci only work in extremely liquid market conditions and over long time frame (weeks, months, years). Quite often the problem isn’t the tool, it’s what use is being made of it.

Technical Analysis to Trade or Just Keep it Simple?

Technical analysis for one only shows where a share has been, not where it’s going. If it worked so well, we would only need to buy some charting software and we would all be printing money.

I would say that keeping it simple is the best choice. Using simple support and resistance levels, a simple moving average, news, market conditions, and a finger on the pulse of the share are the best tools, rather than looking at a lot of lovely colours and a chain of candle sticks, tickling your chin, trying to fathom it all out. This has been my own personal experience anyway, but, if you find something that works for you, stick to it, there is no one size fits all in this game.

The best rule by far is do not hold out for what you think may come take whets on the table before it turns And the most common problem is over leveraging and holding no reserve and not taking a profit but watching your stop get hit when it turns hoping it turns back

Most technical indicators lag, so on weeks of high volatility they really are of limited value. Yes, granted, one can speed up the signals but I don’t do that. The charts provide some help, in that I am more inclined not to buy back something that has fallen through a trend line but even then on weeks like this one has to take a view.

So my trading strategy, broadly, is to sell the dodgy stuff that is the stuff of raging bull markets and trade/hold the strongest in the belief fundamentals will-out in the end. But at the same time, use the chart to only keep/buy back the strongest of the strongest.