This is a quick reference on Technical Trading and what you need to know:
1. Everything Starts and Ends with Candlesticks. If you do not understand how to read candlesticks, you should not be trading. There are infinitely many sites and graphs that explain them, but because when I learned it in 2004 there were very few, I’m still partial to Chart School on StockCharts.com. Try to read a few PDF’s like here, here & here, but if you search the web, you should be able to find books as well.
Tone Trading Tip: The candlesticks that matter to me are Doji, Shooting Star & Hammer. If you learn anything from my video’s & seminars, I hope it’s how to utilize these 3 candles.
2. Support & Resistance – This comes in many forms, but I like to simplify it to just 3 types:
A. Horizontal – Where prior points of interest like highs and lows create critical price levels
B. TrendLines – Where a straight line can be drawn connecting 3 highs or lows at different price points
C. Moving Averages – There are always debates on Simple vs. Exponential (I prefer the Simple 50 & 200 as a reference)
There are lots of additional tools in this section that many traders love, but it’s crazy to use them all. Here are some I personally do NOT care for but other traders swear by them: Bollinger Bands, Ichimoku Cloud (too convoluted for me), Pivot Points, Volume by Price
Tone Trading Tip: In my experience, Double Tops/Bottoms are NOT Resistance/Support (Triple is even less so). I believe you only get one chance to sell the top and one chance to buy the low. If you see a Double Top or Bottom expect a Breakout or Breakdown soon.
3. Chart Patterns – I find this to be very useful because not only is it helpful in identifying potential direction of a move, it also helps with identifying target points of how big the move should be. ChartSchool covers this in two sections: Intro to Chart Patterns & Chart Patterns.
Once again there are lots of resources online but my favorite Patterns are: Ascending or Descending Triangles (Symmetric as well but they are less predictable as to which direction it will break). I do however like Symmetric triangles when part of a Flag Pennant. (like shown here) I have also had good returns using Cups & Handles.
Tone Trading Tip: Head & Shoulders is a very obvious pattern so I rarely talk about it but it’s Ok. What I DO NOT really care for are Wedges & what I like to call Creature Patterns (ex: Crab, Butterfly, Bat)
4. Momentum Indicators – There is an overwhelming amount of them so please read a well put together Introduction to Technical Indicators and Oscillators. You can also review the more popular ones individually listed under the Technical Indicators heading. Just like with Moving Averages, I prefer to use the most popular ones & take advantage of group think vs something obscure that only the very few identify as a trading symbol. For this reason I advise starting with understanding the MACD, RSI, Stochastic, StochRSI, CMF, CCI & ADX.
Tone Trading Tip: My most favorite way of utilizing MACD & RSI is by looking for Divergence. And for the Love of God, please do not turn into one of these guys 🙂
5. Advanced Chart Annotations – Trendlines were covered above and the concept of using Trendlines to make Trend Channels is straight forward, but there are more advanced “Chart Annotation Tools” many traders use. My favorite on this list is the Fibonacci Retracement. Other traders also like using the Fibonacci Arcs & Fans and Andrews’ Pitchfork is a popular tool.
Tone Trading Tip: Always have a stop loss for the trades you enter, either mentally or automated you have to know ahead of time at what point your trade failed.
6. Time Analysis – This concept is very important and most traders do not even know it exists. It is slightly covered on ChartSchool with Cycles and Fibonacci Time Zones, but there is so much more that needs to be learned for those looking to become good traders. Martin Armstrong for example, cares way more about time in his trading than price and as the readers of this guide know, I’m a huge fan of trading the Tom DeMark Indicators. I have seen the TD Indicator be used on Wall Street very successfully and the biggest reason most traders (especially Crypto Traders) have not heard of it is because it is limited to the $2,000/month Bloomberg Terminal with a $500/month trader package. Here are additional resources for readers to better understand this indicator:
TD Sequential by Trade Trekker
TD Sequential Math Rules
TD Practical Technics
And Many other resources that could found on-line once you know what you are looking for. One of my favorites is this presentation by Bloomberg Market Essentials: Technical Analysis. (You can download the TD Indicators Book by Jason Perl by clicking the link on page 1)
Tone Trading Tip: TD is an advance indicator for experienced traders, and it is not a one size fits all. 5 different traders can be trading it differently because it provides lots of information. Most of my time consulting clients is spent explaining this indicator.
Here are serious references like books and exams that professional need to be familiar with:
Chartered Markets Technician (CMT) Exam website has lots of resources for those interested in the highest level of Technical Analysis
Candlesticks Made Easy (56 pages)
Candlesticks, Fibonacci & Chart Patterns (275 pages)
Step by Step Trading (75 pages)