Technical Trading Strategies: 5 Steps To Success For Beginners
Technical trading strategies rely on many important factors, such as a trader’s ability to analyze safety movements and recognize chart patterns. For those who are new, technical trading can seem overwhelming. Fibonacci ratios and harmonic models, inversion models and option spreadsâ¦ there is a lot to consider. To familiarize yourself with technical trading, it is a good idea to develop a system.
Below, we’ll go over a simple five-step framework that will help many traders master their own technical trading strategies. It is broad enough to accommodate different styles and approaches to trading. Yet it is defined enough to get any new trader started on the right path to successful day trading against patterns.
1. Choose your technical trading strategies
Getting into technical trading means finding a model that you feel comfortable with. Maybe you are good at spotting corners? Or do you have a knack for seeing price channels? Or maybe you prefer animal designs, like butterflies, bats, and crabs? Whatever the pattern (or family of patterns), start with what comes naturally to you.
Research your technical trading strategy thoroughly to understand the fundamentals behind it. It’s one thing to spot a pattern; it is another to understand the technical ramifications. Spend time familiarizing yourself with the patterns from a paper trading perspective so that there is no risk as you learn.
2. Identify security opportunities
While you trade on paper, explore real headlines and follow them. Familiarize yourself with the process of recognizing patterns, analyzing them, setting price targets and stop-losses, etc.
Go through the process you would have with a real trade and become familiar (and comfortable) with the trade. Practice leads to habit, which leads to consistency when it comes to trading for real.
Now is also the time to sharpen your focus. Are you going to trade individual securities? Index funds? Forex? Get to know the most common types of securities and their patterns, as well as how often you want to trade them. Will you be a true day trader or will you be working in weekly options? Longer? Shorter?
3. Set up your brokerage account
When you are ready to trade, take the time to find a broker who offers valuable tools for success. Make sure you have a Level 2 trading account for real-time market maker quotes and choose a brokerage that offers robust technical valuation tools and charts.
Your choice of broker will strongly affect the technical trading strategies you can use, depending on the features they offer. It’s also a good time to explore third-party technical software.
4. Define trading thresholds and monitor
That’s it: it’s time to trade! Make your first trade using the approaches you developed in Steps 1 and 2. And stick with the habits you developed when trading on paper.
Locate and qualify the pattern. Identify an entry point. And, most importantly, set your trading thresholds. Whether it’s put or call options, target price or stop-loss, set the parameters of your trade. Stick to these parameters and don’t be too ambitious. Hopefully your first trade – and many more after that – will result in some winning.
5. Test and refine your strategy
You will gain and lose over the course of your trading career. Either way, every job is an opportunity to learn. Determine what went well for your big winners and re-evaluate your choices to lose positions.
Although you cannot predict the market, you can perfect your technical trading strategies to give yourself more opportunities to win. Use your successes with one model to jump into another, and before you know it, you’ll have a full range of trading opportunities to tap into.
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Traders can explore all kinds of technical trading strategies, from straddles and squeezes to inversion pattern trading and vertical option spreads. Finding the right one for you is the product of the trust in the system that you create for yourself. Knowledge, due diligence, the right broker, and a little forethought can make you a successful trader, one job at a time.
Read more: Top 10 technical indicators for trading