Jun 11 2018

Optimize Investment Strategy via Technical Analysis

In the present era, the global financial markets are driven by 3 factors namely, Fundamental, Technical and Psychological. While numerous articles are dedicated to the pros and cons of each factor in detail, each element has their relevant idiosyncrasies which in isolation can be proven to be better than the others. However, a veteran trader will be quick to point out that each factor is equally important before venturing into the trading world. The key is to strike a balance differentiating the analysis from other participants shaping it to become the best in the business.

Markets move in only two directions i.e. either you are riding or against the direction. In the financial markets, a trader should promptly realize the mistake and ‘get out’ of trades in losses more efficiently than in other life scenarios. As these markets are leveraged, the return and risk magnify. The trick is to identify the correct market opportunity and ‘get in’ after careful consideration.

Since this is the first article on the technical analysis series, the thematic content of this piece will focus on how to optimize the investment strategy and the upcoming articles will concentrate on other intricacies enveloping the technical analysis.

For a novice trader, numerous questions may be circling in your mind regarding initiating positions in the market. How do I find the perfect market entry? Should I place a stop loss or not? What if my stop loss is triggered? What is the information to consider that could affect my trade? How many lots to trade with? What is the impeccable time to enter the market?

What are the steps to be taken before trading any instrument? Firstly, the trader should be acquainted with the overall direction of the markets and likewise, all the positions should be initiated in that direction only. Awareness of the information related to the fundamental analysis that would be released daily or weekly could also affect the instrument.

One of the tools that a trader possess is Stop Loss. Before determining the entry level, a trader should determine the stop loss level so that his pre-conceived entry should be placed as close as possible to the stop loss and the actual stop loss level can be placed well below/above the stated level. The worst nightmare of the stop loss point being triggered can effectively be reduced or eliminated.

Another dilemma of a trader is to identify the support and resistance level for which various tools and indicators can be utilized along with drawing the trend lines. All the dilemmas will be solved through articles written specifically on these topics in the ensuing days.

A trader should maximize the efforts to figure out the correct entry and exit in the markets. In doing so, he should remain calm and allow the markets to follow and respect his analysis. From my personal experience, I have observed that traders first initiate positions and then spend precious time expecting the fundamentals to work in their favor. Thereafter, the more time you are tied to a trade, your psychology is also hampered and you tend to believe more staunchly that the trade decision initiated is correct and all signs will align in favor of the position. The stop loss will help to get out of the wrong trades and also provide the opportunity to enter a new trade.

While trading is done for all types of asset classes, fundamentals for gold, silver, crude, copper will differ from the fundamentals of global currency pairs like USD/JPY, USD/GBP, USD/CHF, EUR/USD and Crypto currencies including BTC, ETH etc. But technical analysis for any of the aforementioned asset classes remains the same. A good trade is a blend of knowledge of market fundamentals, sound technical analysis and the optimum market psychology.

As per my experience, I am a strong believer that technical analysis works 70 per cent in currencies, 50 per cent in commodities and only 30 per cent in the stock markets. Fundamental analysis is accountable for the remaining per cent in the above cases.

Technical analysis includes many indicators and tools to ponder upon. However, a smart trader will use only those which suits their trading strategies. It will be advisable to be acquainted with most of the indicators and tools out there but prioritize the ones that fit you and you are comfortable with. For me, Elliot wave, Ichimoku, Fibonacci series, Slow Stochastics on Japanese candlesticks are some of the indicators that I use frequently. But technical analysis is an extremely subjective matter and your views might differ from mine. However, it is what you infer from this article that will spur me to write the next one!

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Author Bio:

In a professional career spanning two decades, Mr. Jitesh Surendran has worn many hats. From starting off as a certified Currency Trader, to a Commodity/Currency Broker to the Country Head to IBs, to currently assuming the role of a CEO of Mercantile Exchange Nepal Limited, the first automated commodity exchange of Nepal coupled with holding acclaimed position of a Vice-Chairman of South Asian Federation of Exchanges (SAFE) and a member of Association of Futures Market (AFM) to becoming the inaugural recipient of Nepal Brand Leadership Award 2017and also overseeing the development of various upcoming exchanges in the position of expert advisor, panelist and consultant, Mr. Surendran has seen it all and has hands down experience in building brands, managing customer grievances to closing deals-national or international.