Beginner Guide to Technical Analysis -1

Trading Methods
Find the method that you wish to start. Would recommend start with swing trading first rather than intraday or scalping to start.

Important to understand for trader to be profitable
Managing your Risk to Reward ratio with a strict and well defined trading plan

5 Steps to Price Action

1) Determine the stock trend direction
Is it currently a up or down trend stock?

- You can use Exponential Moving Average 20 days (EMA20)for that
- Set indicator timeframe as 1 Day
- Look for chart that is showing visible major uptrend or downtrend.
- Stocks that have messy chart usually have buyers and sellers undecisive on the stock itself and we should avoid this kind of stocks
- Stocks above the EMA20 = Uptrend ( We will consider long)
- Stocks below EMA20 = Downtrend (consider short)

This is an example of chart that is not showing a clear trend. It is mostly moving up and down for most of the time

This is another example of unclean chart

This is an example of chart with very clear direction of Trend

Once it is above EMA 20 it means that it is on a uptrend which meant that there is a likelihood that it will rise higher.
You can see that the left side is below EMA which meant that the current downtrend was not over yet so don’t go long on a downtrend movement.

If you think the stock dip and is a good opportunity to buy, you need to reconsider
As if a stock is below EMA 20 it means that it is currently on a downtrend and you should not go long/ against the trend. Do not long anything below the EMA 20

You are better off to buy a uptrend stock which is above the EMA 20
As your probability of the stock continue its uptrend is much higher than trying to buy a dip on a stock below its EMA20

Gaps formed a strong support level
Its is one of the best ways to draw support lines. When there is a gap, draw a line at the last candle before the gap up.

Another example of Gap Up

For Gaps Down
Price came to resistance and recjected which led to the price being push lower
The purpose of resistance is to either 1) Take profit (If holding long position
2) Short it (If reject resistance level + showing downtrend
3) or Buy it (If Break above + showing uptrend)

Usually on a uptrend stock, it will go through phase of sideways consolidation followed by testing of resistance level afterwhich it will attempt to break through the resistance of creating a higher highs and higher lows and continue its consolidation phase again

In Summary:
Draw support for uptrend stocks, wait for them to come to the support level and watch. You could also draw resistance on uptrend stocks, because if they breakout of resistance, they are telling you that it is going to to a higher price level
So drawing both support and resistance level are important
Once you draw the support and resistance level, put a price alert near theree
Prupose of support is to wait for opportunity to see if the current support level can hold for you to buy in
The purpose of resistance is to take profit and sometimes can be seen as a breakout trade as well. ( Go above above the resistance level)