Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Why Technical Analysis Is Critical for the Success of Traders and Investors

By Chris VermeulenMarket OverviewNov 10, 2022 09:49AM ET
www.investing.com/analysis/why-technical-analysis-is-critical-for-the-success-of-traders-and-investors-200632218
Why Technical Analysis Is Critical for the Success of Traders and Investors
By Chris Vermeulen   |  Nov 10, 2022 09:49AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Suppose you have suffered from significant losses or have a large account drawdown during market corrections or bear markets. In that case, your investing process has one or possibly two critical flaws. The brutal truth is if you can’t control these two problems, you will never experience long-term sustainable growth or avoid large drawdowns in your trading and retirement accounts. So let me tell you what they are to help you work towards correcting them.

The First Problem: It could be that you don’t have a handle on your emotions and self-discipline to follow your strategy and pull the trigger to enter, take profits, and exit trades when you should control risks and positions.

The Second Problem: Maybe you are trading without rules because you need a clearly defined strategy to follow. Having a strategy tells you when to enter a position, take profits, and, most importantly, when to exit if things go south.

The good news is that if you can resolve the second problem, which technical analysis helps do, the first problem becomes much easier to overcome.

The bad news is that only you can overcome the first problem of managing your emotions and self-discipline, which is why it’s called “self-discipline.” No one else can do this unless you have someone execute the trades for you or have a strategy auto-traded in your account, which removes you from the equation of knowing what to do and following the markets. 

Mastering the Process 

The technical traders flow chart below shows how market data gets processed, analyzed, managed, and traded. It is a relatively simple process, where we take the raw price data and some indicators to identify which direction the asset is moving, both from a long-term and a short-term point of view.

Once you know the direction an asset is headed, you can apply the appropriate strategy and then execute trades to profit from the asset. Depending on if you are a swing trader or an investor looking for more significant gains, you will use a different strategy.

Technical Trading Analysis Process
Technical Trading Analysis Process

Why Technical Analysis Helps You Succeed

Technical analysis allows us to focus strictly on price action to help put the odds in our favor. As investors, we know that we only experience account growth when the assets we own increase in value. It is only logical to focus on the price charts using technical analysis to follow and trade in the direction of assets we want to own.

Technical analysis offers us many advantages:

  • Technical analysis works in any time frame.
  • Technical analysis works with all assets: indexes, stocks, commodities, and currencies.
  • It allows you to find low-risk and high-probability trade setups.
  • It allows you to define risk and place protective stops.
  • It allows you to define profit potential and set limit orders.
  • Technical analysis removes the guesswork from trading, allowing you to create a simple, repeatable, rule-based system to generate a reliable ROI.
  • Through technical analysis, you gain clarity on an asset trend to be sure you only own and hold positions in assets rising in value.
  • Finally, technical analysis allows you to ignore news and opinions, which reduces emotional stress so you can properly execute your strategy.

Concluding Thoughts

I am a firm believer in single-asset revesting portfolios. This is when a portfolio only owns the best asset at any given time that is rising in value, and when that asset stops rising, it revests the capital into a different asset which rising in value. 

I find that roughly 40% of the time, my active investing account is in cash, waiting for the following one of the core investment assets to start a new uptrend. These main assets are stock indexes, bonds, and the US dollar index.

In my next post, we will find out what type of investor you are. By knowing the types of trades you like and your personality type, we will have laser beam focus on which strategy to use and the assets you should trade. Your portfolio must have the correct risk and position rules to protect you from significant losses and multi-year drawdowns, which can lead to high stress, and a lifestyle downgrade.

Why Technical Analysis Is Critical for the Success of Traders and Investors
 

Related Articles

Why Technical Analysis Is Critical for the Success of Traders and Investors

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
True Stamp
True Stamp Nov 10, 2022 2:16PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Spot on
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email