Now that you have learned the basics of charts, go ahead and play around with them so that you become familiar. They will become your friends, and you shouldn’t feel threatened by them. Whether you go on to a free charting service such as www.bigcharts.com, or have a paid or broker provided service, you will find a whole host of gizmos available to you.
What you have to do now is not become overwhelmed – easy to say, but take your time. I could show you 100 different indicators that profess to be the best in guiding you to the profitable trades. The fact is that you would not use 100 indicators, and most traders use no more than two or three. Some provide duplication of the indication with just a little refinement, others use a different method to indicate, but it doesn’t matter. In the next few chapters we’ll go over many of them, and if you see one that appeals to you then you can start looking at that in relation to the markets you’re trading to see how well it works.
Just a few points to bear in mind: –
- Don’t worry about getting a perfect indicator, there isn’t one. Sometimes they work, sometimes they don’t. Trading is a game of probabilities, with the result that you will finish up on top if you put the odds in your favour.
- Losses are hard to take, but if you bet according to your plan and your plan is sound then it’s not your fault. Understanding this mentally is one of the big barriers to trading, so we’ll devote more time to it later.
- Before you take a trade, your trading plan should include some sort of confirmation, usually in the form of another indicator or pattern which is telling you the same thing. Generally, you won’t ever bet on the basis of a single digit or indicator.
- But you must make sure that your confirmation is based on something different. With so many indicators, some just manipulate the same data, which essentially means they will show you the same indication – this doesn’t count as confirmation! Have at least two indications, based on different foundations, before you bet.
- The simpler the better. You don’t need to have lots of complicated formulae, and if you do you’ll probably get lost in what they’re doing. Make it just as hard as it needs to be, and no more.
There are three basic ways to use charts. Firstly, you can look at the movement of the price, perhaps drawing lines in various ways to indicate where it is going. Secondly, you can look at the individual price moves as shown by the candlesticks, and find patterns that denotes the market sentiment. Thirdly, you can have indicators plotted underneath, and the movement of these can indicate market sentiment. In the next few chapters you will learn about these different techniques.
Many indicators are referred to as oscillators, because they go up and down suggesting the sentiment of the market. Most of them work in the same way, in that if they get to extreme value, it tends to suggest that the market is ready to change. Usually, you wait for the indicator or oscillator to show a change from the extreme to signal the start of the price trend changing, and where there are different ways to use them these are also detailed in the following chapters.