Technical Analysis

While it is possible to make money in technical analysis, it takes a high degree of expertise and sophistication to use chart strategies profitably. Individual traders need to exercise strong self-control and avoid emotional trading. They will also need enough starting capital so that they will not go broke after a few bad trades.

There are many ways to learn technical analysis, including through books and online courses such as Investopedia Academy. Once you have a solid foundation, you can start testing your trading skills through paper trading before you start investing real money.

Trading can be challenging, which means it’s important to do your homework beyond the above points. Some other key considerations include:

Traders may require different levels of functionality depending on their strategy. For example, day traders will require a margin account that provides access to Level II quotes and market maker visibility. But for our example above, a basic account may be preferable as a lower-cost option.

Get the right trading account that supports the selected type of security (e.g., common stock, penny stock, futures, options, etc.). It should offer the required functionality for tracking and monitoring the selected technical indicators while keeping costs low to avoid eating into profits. For the above strategy, a basic account with moving averages on candlestick charts would…

Not all stocks or securities will fit with the above strategy, which is ideal for highly liquid and volatile stocks instead of illiquid or stable stocks. Different stocks or contracts may also require different parameter choices—in this case, different moving averages like a 15-day and 50-day moving average.1

The first step is to identify a strategy or develop a trading system. For example, a novice trader may decide to follow a moving average crossover strategy, where they will track two moving averages (50-day and 200-day) on a particular stock price movement. For this strategy, if the short-term 50-day moving average goes above the long-term 200-day…

There are generally two different ways to approach technical analysis: the top-down approach and the bottom-up approach. Often, short-term traders will take a top-down approach and long-term investors will take a bottom-up approach. In addition to this, there are five core steps to getting started with technical analysis.1

Many investors analyze stocks based on their fundamentals—such as their revenue, valuation, or industry trends—but fundamental factors aren’t always reflected in the market price. Technical analysis seeks to predict price movements by examining historical data, mainly price and volume. It helps traders and investors navigate the gap between intrinsic value and market price by leveraging techniques like statistical analysis…