Top Dogs Trader

Day Trading Tip - Technical Analysis - Fundamental Analysis

If you are day trading then you should already know that it is mostly done using technical analysis, never day trade on a tip!

Technical analysis of the financial market, or any other market such as Forex, Bonds, Futures, is how most people involved in trading make their trading decisions.

This is as opposed to fundamental analysis which most people more agree is pretty much done as a way of making trading decisions, unless of course you are a big fan of Warren Buffet.

You only have to look back to recent stock market scams like Enron to know that it is almost impossible for the average, and even very sophisticated fund manager or hedge fund trader to really know what the real financial state of a company is.

Just by reading the balance sheet and other quarterly reports they release gives you a very limited insight into the real health of the company. Whereas the technical charts of the company tend to tell the truth of what the market thinks of the value of the company.

In the case of the famous Enron investment scam even simple technical analysis told you to SELL when the stock was in the $80-90 range, this is why technical analysis of stocks is so popular.

So what is the best way to approach technical analysis?, I'm about to tell you, here are my golden rules:

* Only use 3-5 easy to use indicators

* Make sure that you understand how the indicators that you have selected work, what the parameter settings are and in what market conditions they are effective

* After selecting your indicators and parameter settings don't keep changing the values, it really will not matter that much. Remember there is NO holy grail technical indicator!

The real secret to technical analysis is to become VERY familiar with your chosen indicators, and really this can only be done by watching and studying the market, so that you get to the point that you TRUST them.

The fact is that in any market, for each bar, there are only 5 pieces of information, the open, close, high, low and volume, yet there are now hundreds of indicators. Most of these indicators are displaying the same information and so are redundant.

For the record my set of indicators are:

* 4 Simple Moving Averages

* Bollinger Bands

* MACD

* Stochastics

Using just these 4 indicators, along with support and resistance, and trendlines I am able to make good trading decisions.

You may find it is very useful to print out the charts along with your technical analysis indicators and trendlines before actually making the trade.

Sometimes you can see things on paper that you miss on the PC screen. Being patient and waiting for the good trade setup is one of the hallmarks of a good trader, after all you can't expect good trades to appear everyday just because you want to trade.

If you want to become a good day trader the best day trading tip I have is that you must become an expert in technical analysis - a great place to start is with this free 5 day trading course