If you are interested in learning technical analysis there are a lot of different places to start. Particularly in today’s world where there are millions of online sources and sites that are willing to teach you just about anything you would like to know about the practice.
Beginning Stock Trader recommends that when it comes to technical analysis, you start with the books. Reading technical analysis books has done more for most beginning stock traders then any other method of learning.
There is a reason for this as well. Technical analysis is so much more than just staring at a chart and deciphering where it will go next. Traders that do that win 50% of the time, if they are lucky.
Technical analysis is involves looking much deeper and understanding what is driving the price action on certain stock charts. For example, when a stock price hits the 50 day moving average and immediately bounces and starts moving up, it is not simple happenstance, it is supply and demand!
The stock price is climbing because more people are wanting to purchase shares of stock there then there are available at that price. This means the price climbs until an equilibrium is reached. Technical analysis can help see when that is reached as well.
There are a few reasons for this. One important reason is that some institutions are known to defend the 50 day moving average. Meaning, if the stock price looks like it is at risk of dropping below the average, the institutions will purchase a significant number of shares to boost the price back up.
The other reason is traders that are using technical analysis. These traders are waiting for the price of the stock to hit the moving average because they know there is a good chance the price will begin to climb.
They have orders in to purchase shares of stock the instant the price hits the moving average. Because so many traders have those orders in, demand goes up at that price and the price reverses.
There are many other reasons for supply and demand to go up as well.
The point is that reading about technical analysis is incredibly important. Much more so then just learning a few patterns to watch out for.
If you do not know the backstory of why certain chart patterns work, you will not recognize when there is something amiss and you could lose a lot of money when your charting doesn’t return the results that you thought it would.
So read the books! There are dozens available on this website and many others. Take a little time and read a few, then you will be ready to make real money with technical analysis.
Remember, never invest more than you can afford to lose!
