Technical analysis I

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18. Is technical analysis for you?

The successful technical analyst has a particular type of mindset. You don't necessarily have to be born with it, but you do need to develop it. Ask yourself the following:

1. Technical or fundamental?

   Most investors feel more comfortable with the precepts of fundamental analysis ('shares rise and fall according to how well a company is doing') than those of technical analysis ('shares rise and fall because of market psychology') - to start with. Decide how rooted you are in the fundamental mindset, and whether you can make the switch to a technical approach.

2. Are you a trader or an investor?

   Technical analysis encourages a 'trading' approach to the markets. You take a position on a stock, and the market quickly tells you whether you were right or wrong. Then you move on to the next trade. Fundamental analysis, by contrast, is about 'investing in the business'. It is 'bottom up'. Which approach do you prefer?

3. Are you fazed by uncertainty?

   Being wrong in technical analysis is part of the game. Even when the indicators point firmly in one direction, the share price can go in the other. Can you cope with a system that is inherently uncertain, or will it frustrate you beyond measure?

4. Are you disciplined?

   One of the axioms of trading is that you must not allow rational analysis to be swept aside by emotion. You have to be disciplined, sticking to your system. Do you have that kind of self-discipline?

5. Are you focused?

   A similar point to the above - when you have a technical system, it is important that you are not swayed by extraneous information. You have to be focused, courageous and persistent. Are those your characteristics?

6. Are you computer literate?

   It is unrealistic to trade in the markets if you are not computer literate and internet-savvy. So many of the tools and resources are online, that if you ignore them you make the whole task much, much more difficult.

7. How much time do you have?

   An obvious point, but often ignored. It is no good deciding that you are going to use point and figure charts as the basis of your trading if you can only afford five minutes a day to study them. Successful trading using technical analysis needs quite a lot of intellectual input, which requires time. Have you got it?

1. What is technical analysis? 2. Technical analysis compared to fundamental analysis 3. What technical analysis is not 4. Dow Theory 5. Price data 6. Volume data 7. Line charts 8. Bar charts 9. Volume charts 10. Point and figure charts 11. Other types of chart 12. Trends - the basics 13. Simple trend lines 14. Making money from trend lines 15. Trend channels 16. Support and Resistance 17. Breakouts 18. Is technical analysis for you? 19. Software for technical analysis 20. Conclusion

• An Introduction to Technical Analysis - Reuters Financial Training Series
• Technical Analysis of the Financial Markets
• Martin Pring's Introduction to Technical Analysis