Understanding Technical Analysis Of
Stocks, Futures And Commodities
By Rocky Tapscott
Understanding Technical Analysis of stocks, futures and commodities
can be a valuable tool in determining the trend of any market and
assisting with entry and exit levels for your trades.
The goal of technical analysis in the stock, futures or commodities
market is to help us determine when a market is trending, and when it
is not. If a stock or futures contract we want to trade is trending,
then we want to be on board. If it's not, all you are going to do is
lose money as you get whipsawed around day after day. This is not what
we want as traders.
If you trade using a weekly chart, all it takes is a couple of trends
a year to make a lot of money trading. If you trade something like
that S&P Emini futures contract, using a 3 minute chart, then you'll
need one or two of these strong trends a day to do well, but it's all
relative.
Unfortunately, many people fight the trend and buy at every small up
tick in a down-trending market, thinking they have picked the bottom,
only to see the Stock or index fall further immediately. By the time
the sellers are finished, these traders have spent their monetary and
psychological capital in a futile attempt to pick the bottom of the
market.
Another common mistake traders often make is buying more as the price
falls, or averaging a loss. You can imagine how dangerous this
strategy can be in a strongly down-trending stock - it's something
good traders never do. The trend is your friend, don't ever buck it.
Good technical analysis skills, especially in fast moving futures and
commodities markets, give us a mechanical indicator for price points
to use for entries and exits and take a lot of the guess work out of
our trading. It is very hard to argue that the trend is anything but
down at any time if you are simply looking at a series of consistent
lower tops and bottoms on your chart.
Does good technical analysis mean you'll always make money?
No, of course not. Losses on some trades are inevitable, as we cannot
know for sure what the market will do. It only takes one person
somewhere in the world to invalidate your perfect trade set-up and
send the price of any market in the opposite direction to what you
were certain was going to happen.
All our analysis can do is alert us to probabilities - there are no
certainties in financial markets. This is the hardest thing for most
traders to accept. We all hate to be 'wrong', but that is the nature
of the trading business.
All we can do is take every trade and see what happens. The better our
analysis and our trading system, the more likely our trades will
produce profits.
Every one of us must learn or develop a system of analysis that we are
comfortable with, based on what we learn from other traders, mentors
and coaches, and then we must take every trade that system signals.
If we start to second guess our system, we may as well throw it away
and just stick with our day job.
Make a decision to develop or learn a technical analysis system you
are happy with, and commit to taking 20 trade set-ups in your
preferred stock, futures market or commodity no matter what.
Then follow your trading rules to the letter. This will give you an
objective measure of how profitable your system is and whether it is
right for you.
If you can enter a trade and hold a position, your plan is sound. If
not, you may be over-trading (have too many open positions for your
account balance and your personal temperament) and need to reduce the
size of your position or adjust your plan is some other way.
The large profits come from using a proven technical analysis method
to identify a strongly trending market and taking multiple positions
with that trend.
This naturally involves holding firm and not jumping out at the first
sign of trouble. Of course, you can only take what the market is
prepared to give, so a system of trailing stops is a good way to lock
in profits as they accrue.
Bottom Line: Find a trading and analysis system that's been proven to
work from somebody who has been actually trading it for a long period
of time, have that person coach you through their system until you can
implement it flawlessly, then take every trade signal the system
produces regardless so you can test it's validity.
All great athletes, business people (and yes traders) have a mentor or
role model who they turn to for advice and guidance. Find one for
yourself and your results as a stock, futures or commodity trader are
bound to improve.
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3 Simple Steps To Becoming A Successful
Emini Trader
By Rocky Tapscott
Trading the Emini futures market can be the ultimate lifestyle
business. No employees, no boss, time freedom, you can run your
business from anywhere, and enjoy potentially very good earnings.
If only it wasn't so difficult to make it all work...
You know what I mean. You do your analysis, see a trade, and hit the
order button. And then you start to worry. What if I'm wrong. What if
that reporter on the finance show was right about the jobs number
coming in higher than expected. And the Fed could raise rates this
afternoon.
Your mind starts racing with all sorts of 'What would happen if?'
thoughts, so you decide you'll wait until tomorrow, just in case these
demons combine to knock you out of your trade with a loss.
You hit the shops, or the beach, or the woods...anything to take your
mind off trading for today. Tomorrow will be better you assure
yourself, and you bask in the feeling of relief that your precious
capital is no longer at risk today.
But tomorrow is the same. There's a different set of risk factors for
sure, but they are still there, haunting you and your trading. You
become paralyzed and can't function. And your confidence and your
account balance start to suffer. If this sounds familiar, here is a
simple three-step solution to your Emini trading problems.
Step 1 - Decide that trading is a business just like any other.
Traders who are successful over a long period of time treat their
trading as a business, not a hobby.
Traders who stick around for a while, blow their accounts and give up
are usually trading for the excitement the action gives them or for
the rush of being in the market.
If that sounds like your current trading style, beware. You are due
for a lot of emotional and financial pain before your trading days are
over (which could be sooner than you think). Treat trading as a
business, learn and test different approaches, and you'll massively
increase your chances of long-term success.
Step 2 - Don't try to forecast where the market is going - trade
reality.
I spent years studying WD Gann's work and all it did was blind me to
the facts - if you think you can forecast where the market is heading
consistently, you are deluding yourself. The bottom line to whether
you can forecast will be your account balance, and for most people who
try, it's not a pleasant experience.
Sure you'll get it right sometimes, and that's the most dangerous
thing about forecasting. By tossing a coin you'll be right half the
time, so you tend to get random rewards when you trade. You win some,
and think your forecasting ability is great. Then you lose some after
doing the exact same analysis, and you start to question yourself and
your abilities.
Eventually this lack of consistency forces you to either change your
strategy or give trading away to protect your sanity...
Step 3 - Learn how to trade from somebody who is prepared to coach,
guide and mentor you until you are proficient and making money on your
own.
To succeed long-term at trading you must think and act like a
competent business person in any other market. You will need to study
and learn your craft by taking courses, you will need to develop a
business plan, and you certainly need sufficient capital to ride out
your learning curve and become a successful trader.
You will need a certain amount of on-the-job training, but learning
this way from scratch can be terribly expensive compared to finding
somebody who will coach you until you are ready.
You'll learn how to trade the Emini much more quickly if you have
somebody who's done it professionally watch over your shoulder and
guide you as you trade. You simply can't learn this stuff from books
and courses. You need to be shown how to do it...
If you were mining for gold, what would you prefer; somebody to sell
you a map, a shovel and a compass and tell you where to go, or
somebody to actually take you down deep into the mine, physically show
you to where to dig for the gold, and then help you carry it up to the
surface?
The answer is obvious isn't it?
Bottom line: Find somebody who is prepared to coach and mentor you and
your chances of becoming a wildly successful Emini trader will become
a whole lot better.
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