Market Wisdom for Smart Technical Traders – Part 1

You have a choice on which style of trading you would like to adapt in your own trading in the stock markets. (Or the forex markets if you're adventurous). That is either to trade fundamentally or technically. Some traders like to mix it up a bit and trade a hybrid system that takes into consideration both the company situation and the chart behaviour. I like to do a bit of hybrid trading myself but in the end, the chart behaviour rules my trading system. In the next few posts I will be hashing through the many maxims and trading lessons that I have found to be true from my own trading experience and that other traders always seem to crow about in various books, seminars and tapes. So stick around, I hope you will pick up a few new tips.

Depend on the numbers not the news

This may be a contradictory statement to the above about hybrid trading, but don't fall into the trap of depending on the news too much if you are trading technically. As a technical chartist, I wish the news will just shut up and leave me alone. Personally, I have fallen into the trap of listening to the news and because of this my technical trading will become somewhat biased. For example, BHP Billiton announces a new discovery that one of their mines have a massive reserve of uranium, but the charts are sharply indicating a sell. Will you buy long into the stock (Remember this exercise if for traders not investors)? The next day the stock price falls with no other reason than investors profit taking from recent highs?

A similar rule to the rule depending on your charts is when you talk about live trades to anyone - your mates, your broker and get some sort of feedback, be it positive, neutral or negative - any reaction will tend to influence your trading. For example, you call up your forex broker and he/she comments that they are personally shorting the currency pair when you are going long... what will you think? It could undermine your confidence in your own analysis. Probably the best you can do is turn it into a learning experience and ask them why they are shorting and what their time horizon was. But would you still put in the trade?

Come back for the next part soon!