Technical Analysis - Support and Resistance

As you can see in the above graph, the stock has difficulty crossing the 29.64 barrier. So, its a support and resistance both.

The stocks normally rebounds from support and resistance. But, if it crosses that it is called a break out. Many people start buying if a stock crosses the resistance and sell if the stock crosses the support level.

Once the stock crosses the support when going down, the support becomes resistance and vice versa.

Trading on the basis of price is called Price action. Sometimes, also call it naked trading. We will talk about some price action patterns in the coming posts. Those price action pattern will allows us to have good probability trades.

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Trading & Investing

Trading - Buying and selling stocks frequently.

Investing - Buying and holding stocks.This goes upto years and investors gets dividend, split stocks.

Type of traders.

• Position Trader – positions are held for months.
• Swing Trader – positions are held from days to weeks.
• Day Trader – positions are held throughout the day only with no overnight positions.
• Scalp Trader – positions are held for seconds to minutes with no overnight positions.

There are two types of  analysis that can be done before investing/trading.

1. Fundamental

2.Technical.

 

For fundamental analysis, you look at the balance sheet, EPS, P/E etc of a stock and make judgement.

Within technical analysis, people use

1. price action

2. Indicators

3. Combination of both.

Trading solely based on Indicators is risky. We can use them for confirmation.

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Risk Management the only true edge in trading.

What makes a retail trader different from a professional trader?

I believe it's the risk management.In order to be successful in trading, it doesn't matter whether you are right or wrong when placing a trade. What does matter is that when you are wrong, you lose a little bit and when you are right, you maximize your gains. The risk reward ratio should be atleast 1:2.

If you give a profitable strategy to some newbie who doesn't use proper risk management, the newbie will surely lose money.  

Why do most traders (especially day traders) lose? 
They don't have prudent risk management skills. End of Story. Now, a lot of folks may say, "but the newbie trader doesn't know how to pick entries and exits". While that may be true for some, the real issue is that when they are wrong, they stay married to a position, or add to a position in order to not admit failure. Your best bet would be to learn to embrace failure, learn to shrug it off, learn to admit when wrong and learn to stay in trades that are winners.

Loss is part of the game. Sometimes, you have to take the loss in order to make a big win. But, the losses have a negative impact on our psychology as we are trained from the childhood that failure is bad. This negative impact leads us to make some more bad calls which makes a further dent in our account. So, to be profitable one needs to have a strong trading mind and should know how to embrace the loss.

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