The Complete Beginner’s Guide to Technical Analysis

Technical analysis is a term that we hear a lot in the stock market. But what does it
actually mean and how can it help you with stock trading? Today, we’ll cover the basics
and tell you everything you need to know.

What is Technical Analysis?

Technical analysis (TA) is the use of past market data to analyze stocks and make better
trading decisions. It’s based on the idea that supply and demand will determine a stock’s
price more accurately than the company’s intrinsic or “true” value.

Technical analysts look at the price movement over time, trading volume, and other
historical market data. Then, they find trends and patterns which can be used to predict
future price movements.

It can seem complicated at first, but many traders actually find it easier than its
counterpart, fundamental analysis. It’s less subjective, involves less research, and can
be used even if you don’t know a lot about the industry or company.

**To read more about fundamental analysis vs. technical analysis, click here.

Fundamental Analysis vs. Technical Analysis—Two Basic Methods to Conquer

the Stock Market

In general, there are two sides when it comes to stock market analysis—
fundamental analysis and technical analysis. Today we’ll discuss both methods and
explain their advantages and disadvantages.

**Before we begin, you may want to check out these basic terms to help you understand
this article better.

Basic Investing Terms for Stock Market Beginners

Being profitable in the stock market is not easy as it requires not only your belief,
patience, and discipline, but also a great deal of your time to research and adequate
understanding of the market, among many others.

Here’s a list of common stock market terminologies that you will inevitably come
across in your investing journey. We’ve also added the gist of their definitions to get you
ahead as learning these jargons (for newbies) is of extreme importance especially when
you are starting out.

The goal here is not to memorize every terminology but use it as a guide to understand
each vocabulary so you may take value from it:

GENERAL INVESTING TERMS

 Invest – putting your money where it can grow

 Stock – a share in the company
 Dividends – the amount of money paid by the company to its shareholders
 Common Stock – the type of stock that is least prioritized when declaring
dividends and mostly profits through price appreciation
 Preferred Stock – the type of stock that is first prioritized when declaring
dividends
 Risk – the potential of either gaining profits or losing your capital
 Returns or Rewards – profits earned by investors
 Short Term – less than six weeks (may vary)
 Medium Term – six weeks to nine months (may vary)
 Long Term – more than nine months (may vary)
 Investors – people who invest their money with the expectation of gaining returns
over a longer timeframe
 Traders – people who buy and sell stocks to earn from price growth over a shorter
timeframe
 Blue-Chip Stocks – stocks of the biggest companies in the country
 Growth Stocks – stocks which have high growth potential
 Value Stocks – stocks which have low price-to-earnings or P/E ratio
 Speculative Stocks – stocks which carry high risk compared to similar stocks
 Defensive Stocks – stocks which do not decrease in price immediately, even
when the market is down
 Penny Stocks – stocks which trade at a very low price
 Stock Market – where investors or traders buy and sell company stocks
 Stock Market Index – a measurement of the value of the entire stock market or a
particular industry in the market
 PSEi (aka PSE Composite Index) – the stock market index of Philippine Stock
Exchange which consists of top 30 listed companies based on market capitalization
 Industry Index – the index of a group of companies which are classified based on
their business activities (i.e. Financial, Holdings, Industries, Mining & Oil,
Properties, Services)
 Bullish – used to describe a particular stock market or stock when its value is
going up
 Bearish – used to describe a particular stock market or stock when its value is
going down
 Initial Public Offering (IPO) – when firms are selling their company shares for
the first time in the public to raise capital
 Market Value – the value at which a stock can be sold in the market at a specific
point in time
 Unrealized P/L – profits or losses which have not yet been converted to cash
because the investor has not sold the stock
 Buying Power – the available money an investor has in his account for buying
stocks
 Buy Order – a request made by an investor when he or she wants to buy stocks
 Sell Order – a request made by an investor when he or she wants to sell stocks
 Volume – number of shares bought and sold in a particular day
 Bid – the prices at which the buyers want to buy a particular stock
 Ask – the prices at which the sellers want to sell a particular stock
 Bid-Ask Spread – the price difference between the bid and the ask
 Trade – made when the bid and ask price have matched
 Brokers – firms or individuals who are licensed to execute the buy and sell orders
in exchange for a commission fee
 Portfolio – a group of financial assets such as stocks held by the investor
 Average Cost/Price – the total price at which you bought a group of shares plus
the commission fees, divided by the total number of shares
 Shares – units of capitalization that represent part-ownership of a company (i.e.
buying 1 share means you contributed capital to the company and therefore own
an equivalent portion of it)
 Board Lot – the standardized minimum and multiple number of shares to be
traded for a particular stock, depends per price range
 Cash Dividends – dividends given in the form of cash
 Stock Dividends – dividends given in the form of additional shares
 Profits/Gains – the amount that an investor earns when he sells stocks at a price
higher than his average costs
 Losses – the amount that an investor loses in his capital when he sells stocks at
price lower than his average costs
 Stock Split – when a company divides its shares according to a particular ratio,
increasing the number of shares and lowering the price of each share (i.e. 1 share
becomes 2 shares)
 Reverse Stock Split – the opposite of stock split, when a company decides to
combine its shares in a particular ratio to decrease number of shares and increase
price (i.e. 2 shares become 1 share)
 Most Active – most active stocks in a particular day in terms of volume traded
  Top Gainers – list of stocks which had the largest increase in price in a particular
day
 Worst Losers – list of stocks which had the largest decrease in price in a
particular day
 Year to Date (YTD) – the period from the beginning of the year (January 1) to
present
 Investment Strategy – set of rules and behaviors an investor practices towards
his investment portfolio
 Peso Cost Averaging – an investment strategy where you put the same amount
of money into a particular stock in a regular schedule to get a lower average cost
 Value Investing – an investment strategy where investors look for undervalued
stocks
 Growth Investing – an investment strategy where investors look for companies
which have a high growth potential
 Margin – the equity value an investor has in his account/portfolio
 Average Down – buying additional shares of a stock for a price that is lower than
your current average cost
 Long Position – A “long” or “long position” is the buying of a security such as a
stock, commodity or currency with the expectation that the asset will rise in value.
 Short Position – A “short”, “short position”, or “short selling” is a trading strategy
where the investor sells shares of borrowed stock in the open market. The
expectation of the investor is that the price of the stock will decrease over time, at
which point the he will purchase the shares to replace those that he initially
borrowed.

MARKET STATUSES

 Pre-Open Period – trading participants can modify and cancel existing orders or
enter new orders
 Pre-Open No-Cancel Period – trading participants may enter new orders but
may not modify or cancel open orders
 Opening Period – opening prices are calculated during this period
 Continuous Trading – the period where trading participants’ orders are matched
and may enter, cancel, and edit orders
 Market Recess – the period where trading-related activities are halted
 Market Resumes – trading-related activities continue
 Pre-Close Period – indicates the last two minutes to open new orders but can’t
cancel or modify orders
 Run-off Period – trading participants can still enter limit and market orders but
matching for both is executed at the closing price of the stock

ORDER TERMS

 Stock Order – a request to either buy or sell a stock

 Normal Orders – orders which follow the normal board lot
 Oddlot Orders – orders which are less than the minimum board lot
 Good to Day (GTD) – an option in ordering where your order will expire at the
end of trading day when not fulfilled
 Good to Week (GTW) – an option in ordering where your order will last for a
week
 Good to Month (GTM) – an option in ordering where your order will last for a
month
 Good to Cancel (GTC) – an option in ordering where your order will last until you
cancel

ORDER TYPES

 Market Order – these are buy and sell orders that transacts the current bid and
ask prices
  Limit Order – this type of order allows you to set the price you’re willing to buy or
sell a stock far from the current prices
 Iceberg Orders– allows you to hide a portion of the volume of your order

FUNDAMENTAL ANALYSIS

 Fundamental Analysis – a method of stock market analysis that evaluates the

economic and financial factors affecting the intrinsic value of a company
 Intrinsic Value – the actual and true value of the company based on all aspects of
its businesses
 Overvalued – when the current price or market value of the stock is higher than
its intrinsic value or the average industry price-to-earnings ratio
 Undervalued – when the current price or market value of the stock is below its
intrinsic value or the average industry price-to-earnings ratio
 Income Statement – provides an overview of revenues, expenses and net income
 Balance Sheet – provides an overview of assets, liabilities and equity
 Statement of Cash Flows – traces the company’s cash movement from
operating, investing and financial activities
 Financial Ratios – ratios derived from the financial statements of the companies
which are used for evaluating the overall condition of its company performance
 Price-to-Earnings Ratio (P/E Ratio) – measures the current price of a stock over
its company earnings per share, the lower the better
 Earnings per Share (EPS) – company earnings for the year divided by the
number of shares
 Leverage – borrowed capital or loans used to fund company activities
 Debt Ratio – the total debt of the company divided by its total assets, the lower
the better
 Debt-to-Equity Ratio or Leverage Ratio – a company’s debts divided by the
value of its equity (based on preferred and common stocks)
 Dividend Payout Ratio – the dividends paid divided by the company’s net
income
 Dividend Yield – the percentage of dividends declared in relation to the stock’s
current price
 Par Value per Share – the price of the stock during its Initial Public Offering (IPO)
 Book Value per Share – the value of the stock in the company’s books (total
equity divided by number of shares)
 Price to Book Value Ratio – the ratio used to compare company’s current price
or market value to its book value, the lower the better
 Sector – a subsection in the exchange of companies that share similar
characteristics in operation
 Sub-sector – a subset of a sector of a group of stocks that have the most
similarities in terms of operation

TECHNICAL ANALYSIS

 Technical Analysis – a method of stock market analysis that uses past data and
statistics to predict future movements in the market
 Trend – the general direction of a market, a stock, or the price of an asset based
on a chart of its historical value
 Uptrend – when price movements consistently reach higher highs and higher lows
 Downtrend – when price movements consistently reach lower highs and lower
lows
 Sideways – when the price of a stock moves in a generally flat manner
 Chart – a visual summary of a stock’s prices within a certain period
 Open – the first price at which a stock is sold for a particular day
 High – the highest price at which a stock is sold for a particular day
 Low – the lowest price at which a stock is sold for a particular day
 Close – the last price at which a stock is sold for a particular day
 Volume – the number of shares that are bought and sold on a particular day
  Value Traded – volume multiplied by the price that investors have paid for a
stock
 Indicators/Oscillators – measurements that investors use to anticipate price
movements, momentum, and other behaviors of a particular stock or market
 Support – a price level at which, historically, a stock has had difficulty falling
below
 Resistance – a price level which historically, a stock has had difficulty breaking
above
 Breakdown – a situation where the price falls below the support level
 Breakout – a situation where the price rises above the resistance level
 Reversal – the change of a price level from resistance/support to
support/resistance after a breakout/breakdown
 Cut Loss/Stop Loss – realizing or actualizing your loss by selling the stock to save
you from a bigger loss
 Bottom-Picking– the act of buying a stock with the anticipation that it has
bottomed out from its downtrend
 Divergence – this happens when a technical indicator and price action are headed
into opposite directions
 Bullish Divergence – a signal that indicates an impending upward move
 Bullish Signal – signal that is given by a technical indicator that indicates a
possible bullish move
 Bearish Divergence – a signal that indicates an impending downward move
 Bearish Signal – a signal that is given by a technical indicator that indicates a
possible bearish move
 Volatility– the proportion or rate wherein the price of a stock is increasing or
decreasing
 Confluence – this occurs when multiple indicators or strategies share the same
sentiment/bias
 Insider Trading – this is done by someone who has non-disclosed, nonpublic
information about a company and trades its shares based on it
 Rally – a period of continuous surges, whether downward or upward, in price
 Parabolic Move – an upward movement in price where it moves in the manner of
a parabola
 Oversold – a reading made by a technical indicator that indicates that it’s below
its period’s “true” value
 Overbought – a reading made by a technical indicator that indicates that it’s
above its period’s “true” value
 Momentum – the rate of the acceleration of a stock’s price
 Momentum Trading – the method of buying a stock while there’s buying
pressure from other investors or traders
 Range Trading – a strategy where a trader buys at support and sells at resistance
during a sideways movement
 Target Price (TP) – the price point where you plan to sell a position
 Time Stop – a way to sell a stock when it isn’t moving within your bias in a
specified time
 Trail Stop – an amount below the current trading price of a stock that you plan to
sell it for a profit
 Tranche Buying – the action of buying a stock in portions
 Tranche Selling – the action of selling a stock in portions

What are fundamental analysis and technical analysis?

Fundamental analysis a method of stock market analysis where investors study the
intrinsic value of a stock (A.K.A. what it should cost) based on a variety of factors.
Decisions on whether to buy, sell, or hold a stock are based on comparing the intrinsic
value to the market price. Fundamental analysis is generally less structured than
technical analysis and is used most by long-term investors.

Technical analysis, on the other hand, is easier to apply to short-term stock trading.
This method uses historical data on price, volume, and other statistics to predict future
price movements. Stock charts are commonly used in technical analysis to track and
analyze patterns that can predict price movement.

In reality, most traders will use a combination of these two methods. A general rule of
thumb is that fundamental analysis will help you determine which companies to invest
in, while technical analysis will help you determine when you should buy and sell shares
of these companies.

So how do each of these methods work? Let’s take a deeper look.

How does fundamental analysis work?

In fundamental analysis, our objective is to assess
the company’s performance and stability—
basically whether it is a good business or not. This
includes looking at financial statements, its
performance compared to others in the same
industry, news that may affect the company’s
operations, and more.

When looking at the financial statements, one of the most important indicators is the
company’s net income. We’re not talking about NGO’s or charities after all. In the stock
market, a company needs to be making money to be valuable. However, you should
remember that a company’s income only shows one part of the picture.

Using a combination of financial statements and news, you can answer more complex
questions such as: Are the company’s expenses high compared to the industry average?
What amount of its earnings are retained and reinvested into the company? Are they
constantly improving their product or service? What are their plans for the future and will
these plans increase or decrease their value? What risks are they taking are you willing
to take on the same risk?

There is no single way to do fundamental analysis, but at the end of the day there is one
question every fundamentalist is trying to answer: Is this a business that I want to
put my money into?

How does technical analysis work?

In technical analysis, people focus more on

identifying trends and chart patterns rather than
the company’s intrinsic value. The underlying idea
here is that a stock’s market value is not always
determined by its intrinsic value. Especially in the
short term, a stock’s price is mostly influenced by
external factors such as market sentiment. Patterns
and trends can be identified based on historical data,
and this is what allows us to predict how sellers and buyers (read: supply and demand)
will react.
There is a long list of tried and tested techniques for performing technical analysis, but
there are far too many for us to cover in one article. Some of the most basic methods
include:

 Identifying chart patterns such as the cup and handles, head and shoulders,
ascending triangle, etc.
 Assessing the market sentiment based on price movement, volume, moving
averages, etc.
 Identifying and riding trends until your preferred indicators signal otherwise
Whatever your preferred methods for technical analysis, the objective remains the
same: To capitalize on patterns formed by the unified emotions and reactions
of market players.

So which is better, fundamental analysis or technical analysis?

While everyone has their own preferences, neither method is really better than the
other. That’s why they both exist! Each method of analysis has strengths and
weaknesses. It’s just a matter of finding your own fit.

If you want to invest long-term, then you might want to go for a more fundamental
approach. You’ll have to do more work initially, but you won’t be as sensitive to the day-
to-day price fluctuations. If you are able to buy an undervalued stock, all those ups and
downs will still result in an overall price increase and profit for you.

If you’re going for a short-term investment, then technical analysis might be a better
option. Because prices tend to fluctuate, patterns in price movement will more
accurately predict the stock price tomorrow or next week. The emotions and reactions of
market players have a bigger impact on short-term investments because there isn’t
enough time for the ups and downs to average out—unlike in long-term investments.

In reality, most traders use a mix of fundamental and

technical analysis to manage their portfolios. This allows
them to see the complete picture and make more informed
trades. Information, after all, is power. Nowhere is that
statement more true than it is in the stock market.

Our advice?
The more knowledge you have, the better. Learning both fundamental and technical
analysis will not only help you make better decisions, but also give you more confidence
in yourself and your trades. This will prevent you from giving into hyped up stocks or
selling your stocks too early because you doubted yourself. It will also allow you to start
building your own stock trading system and strategy—the foundation of any trader trying
to make money in the stock market.

Even if you eventually become a pure fundamental or technical trader, you won’t know
which method works best for you if you don’t try them both first! You may even use one
method to validate your analysis using the other. So give both methods a try, and tell us
about your experience in the comments below.

The 3 Assumptions of Technical Analysis

Technical analysis is very popular, especially for traders who like short-term investing.
But it’s important for you to understand it well before risking your hard-earned money.
Before you go all-in, here are the 3 main assumptions in TA that you should know:

1. The market discounts everything.

This is one of the strongest assumptions in TA. Here, we assume that all publicly
available information is already “priced-in” or reflected in the stock price.

Our assumption is that when market players get information, they react to it by either
buying or selling shares. Because of this, supply and demand will immediately adjust
along with the stock’s price.
Any news, disclosures, or announcements won’t matter anymore because the market is
always a step ahead. You can never have any “new” information that the market didn’t
already account for,

2. Prices move in trends.

Technical analysts believe that price movements are not random. They will always move
in some general direction, whether upward, downward, or sideways.

For example, if a certain stock’s price is increasing, then it is more likely that the price
will continue to increase. If the price is going down, then it is more likely that the price
will continue to go down.

The trend can be short-, medium-, or long-term, but prices always tend to move in one
direction and are more likely to continue that trend rather than move randomly.

3. History repeats itself.

People behave in a predictable way. Because of this, similar events and information are
usually met with similar reactions. Bad earnings will make people want to sell, expansion
plans will make people want to buy, and so on.

This allows us to use past market data and chart patterns to predict future price
movements and market behavior.

Basic Concepts in Technical Analysis

Now that you know a bit more about technical analysis and the assumptions behind it,
let’s cover some of the basic concepts in TA. Each of these concepts can be a full article
on its own, but for now we’ll just run through the most important facts to get you started.

1. Support and Resistance

Support and resistance are two of the most basic concepts in technical analysis. You can
already use them to make trading decisions, but they also form the foundation of more
complex strategies and trading systems.

Support is the price

that, historically, a stock
has had difficulty falling
below. This is the point
where the market
considers the price to
be “cheap”. Demand
becomes so strong that
it stops the price from
going any lower. In
other words, marami
nang gustong bumili
kaya ‘di na masyado bumababa yung presyo.

Resistance is simply
the opposite of support.
This is the point where
the stock price usually
starts going down
because there is too
much supply and not enough demand. Masyadong marami nang gusto magbenta kaya
bumababa yung presyo.

Support and resistance levels are not always precise and they can be broken, but it’s a
simple and proven concept that many find useful. The basic rule when trading using
support and resistance is to buy on support and sell on resistance.

2. Trend Analysis
There are always going to be ups and downs in the stock market and in every stock, but
these ups and downs will eventually form a trend that moves in some general direction—
this is actually one of the key assumptions of TA that we discussed above.

There are 3 basic types of trends:

Uptrend

Identified by a series of
higher highs and higher
lows. The general
movement over time is
going upward.

Downtrend

Identified by a series of
lower highs and lower
lows. The general
movement over time is going downward.

Sideways

There is no clear pattern

going upward or
downward. The general
movement over time is
horizontal or flat.

Similar to support and

resistance, trends are not guaranteed to continue to hold. That’s why they can be further
classified into short-, medium-, and long-term trends. Trends can and do change. But
unless something happens to change the market behavior, then the trend is likely to
continue.
The general rule of thumb? Buy stocks on an uptrend. Avoid stocks on a
downtrend.

3. Volume
A lot of technical analysis involves looking at the stock price, but that’s not the only
important statistic in TA. Another equally important, if not more important, number to
look at is the trading volume.

The trading volume tells you the number of shares that were bought and sold in a
particular time frame (usually a day). You can see the volume shown as a bar graph at
the bottom of the stock chart.

Volume is important
because it gives context
to price movements. It
tells you how strong or
weak a trend or chart
pattern is.

For example: If the price of a downtrending stock starts going up, does it mean the trend
changed to an uptrend? Take a look at the volume and you’ll find out. If the volume is
low, then the trend will probably continue going down. If the trading volume is high, it
means that there is a strong demand for the stock and the trend will likely change to an
uptrend.

The rule of thumb? Kung high volume, push mo na. Kung low volume, ingat
muna.

4. CHART PATTERNS
There are many kinds of charts that traders can use to monitor the stock market, but the
most popular is probably the candlestick chart.

A candlestick chart shows four key prices for the day—the opening price, closing price,
highest price, and lowest price. These are based on that day’s completed transactions.

If the candle is green, it

means that the closing
price was higher than
the opening price. If it is
red, it means the
opening price was
higher than the closing
price.

The colors might

change depending on the chart you’re using, but one color will always show an increase
in price over the day and another color will show a decrease in price.
Once you understand how to read charts, then you can also start seeing patterns
forming. Because TA assumes that history repeats itself, we can use past patterns to
predict future movements in the market.

Here are some basic chart patterns:

Head and Shoulders

A “head and shoulders”

means that there are 3
peaks in your chart
pattern—the middle
peak is the highest
(head) with two
relatively equal lower
peaks beside it
(shoulders). This pattern
signals a trend reversal,
with the line connecting
the two “shoulders” as
the key support level to watch. If you see the price break below that level, expect a trend
reversal or breakdown of the stock. An inverse head and shoulders may also signal that
a downtrending stock is about to change to an uptrend.

Cup and Handle

A “cup and handle”

forms when, after an
uptrend, the chart forms
a large U-shaped curve
(the “cup”) followed by
a smaller dip before
continuing upward (the
“handle”). This pattern
signals that the the
stock is bullish. If the
pattern is completed,
the price will likely
resume its previous upward trend. If the right side of the handle breaks above the peak
formed between the cup and the handle, it confirms that the pattern is complete and
that the uptrend will resume.

Double Top or Double

Bottom

A “double top” or
“double bottom” forms
when a stock hits its
existing support or
resistance level two
times without breaking
through. After the
second peak or valley,
watch out to see if the
chart breaks the key
support or resistance level. If it does, you will likely see it continue all the way up or
down, forming a trend reversal.

5. Moving Averages
There are many types of moving averages used in technical analysis, but they all have
one intention—to remove day-to-day price fluctuations and make chart analysis easier.
Moving averages allow us to plot smoother lines that show trends and patterns more
clearly.

One of the most popular types of moving averages is the simple moving average
(SMA). We’ll focus on this for now.

To find the simple moving average, just get the sum of all the prices in a certain period
and divide it by the number of prices you added up. The most common periods used in
TA are the last 20, 50, 100, or 200 trading days but you can really use any period you
want.

You can use these moving averages to determine support and resistance levels and to
identify trend reversals.

A long-term moving average, like the 200-day moving average, is often used as a basis
for the stock’s support or resistance. It shows the general trend that the stock has been
moving in.

A short-term moving average, like the 20-day moving average, shows how the stock is
performing now . When compared to the long-term moving average, it shows to how the
stock is performing compared to its past performance.

If the short-term SMA

line rises above the long-
term SMA line, you
should buy stocks
because it means the
trend is going upward.

If the short-term SMA

line falls below the long-
term SMA line, you
should sell your stocks
because it means the
trend is going downward.

Conclusion
We talked about a lot in this article, but we barely scratched the surface of technical
analysis! As you practice trading, you will learn how to combine these concepts and turn
them into practical and useful trading strategies.

Stay tuned as we dive deeper into each of the concepts in our next articles and
subscribe to InvestaDaily for more investing tips and stock market advice!

In the meantime, try applying the concepts above in your trading! Leave your comments
below and update us on how you’re doing. 🙂

How To Find Your Winning Trade

Setup
The ultimate goal of any trader like you is
to consistently make a profit in the market
that you chose to trade. To do so, you
need to identify your edge in the market —
which means learning different trading
strategies and set-ups and find the best
one that makes the most sense to you. For
some, they are able to find their ‘holy grail’
in a few months and sometimes, it will take years of getting to know how the market
works and your personal limitations as a trader.

You will experience failures, but that’s part of the process.

In this article, we’re going to tackle how you can find your bread-and-butter setups in the
market.

How do we start trading the market?

When starting, we try to read as much reading material as we can through blogs, web
articles or from the top recommended books we often hear. We also look for trading
videos online created by highly-regarded traders and even follow some of these well-
known traders who regularly display their skills in the market with their “trophy trades”
or bagger trades on social media. We often dissect the average price of their port snaps,
backtest it, and apply it on our own portfolio’s trades but sometimes, we can’t even
manage the trade like they would and it often leads us to disappointments. We lack the
experience and conviction they have with the setup. We don’t know whether it’s the 10th
or the 100th time the said trader executed that setup or more importantly the amount of
backtesting, dissecting, journaling, he has done behind his bagger trades. We might not
even know whether that particular setup fits our trading profile or not. This bitter losing
experience leads most of us to try out another setup and when we do, we lose more than
what we can win, and then we begin again to search for another setup from another
trader or trading book. The cycle goes on and on and on until we are burned and lost all
of our capital.

Steps in finding your trading setup

Finding your niche setup in the market is no walk in the park. The reason behind that is
because you’ll need to have the utmost discipline and commitment in tweaking and
adjusting your trading setup.

Here are the steps to find the right trading setup for you:
1. Know your trading profile. Ask yourself questions such as:
a. Which setups can you trade while working on your day job?
b. Are you more fitted to trade setups with trend-following objective?
c. Do you want to trade bounce play setups but can only enter EOD (end of day)?

2. Back test, back test, and back test

a. Know why and how the setup works
b. Should you add an indicator to confirm your buy and sell signals for your setup?

3. Paper Trade
a. Try out the setup in real-time without using real money and make use of Virtual
Trading to test your skills. Try https://www.investagrams.com/vTrade

4. Trade the setup using real money

a. Risk small/Allocate a small portion of your portfolio

5. Journal your trades (the most important step)

a. Record your entries, exits, and emotions during the trade
b. Review your data and reflect from it
c. You may start your trading journal adventure
here: https://www.investagrams.com/TradeJournal/

Take one setup at a time. It’s best not to be called as someone who’s the jack of all
trades or like a soldier who’s manning a machine gun shooting at everything. Instead, be
more like a sniper, calmly waiting for his target and shooting with high accuracy.
As Bruce Lee puts it, “I fear not the man who has practiced 10,000 kicks once, but I fear
the man who has practiced one kick 10,000 times.”

Good luck on your trading!