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Top 5 Technical Analysis Concepts You Should Master!

Updated: Oct 17, 2021

Have you been wondering where to start with the Technical Analysis in trading? Have you already started with the usual technical indicators but noticed they are nowhere near in providing consistency to your p&l? Read along for our Top 5 Suggestions.

Tip to novice traders: Read the points separately and slowly. Do not skim this article because you will miss the point and confuse yourself. Try to apply what you learn on your own chart in order to reinforce the knowledge.

1. Market Structure: Trade with simply support & resistance areas from larger timeframe

This is differently called as price action trading or naked trading and is quite common among professional traders that have more than 6 years of full-time trading experience under their belt. Naked trading relies only on a price chart, usually candlestick chart and is focused only in support and resistance levels that follow mutliple-timeframe-analysis. We recommend the TDA methodology which suggest analyzing markets from larger timeframe and scaling down to lower-timeframe charts and combining a few rules of thumbs together with some candlestick reversal patterns - for more read "How to understand market structure." or contact us regarding the TDA methodology and blueprint.

2. Old-School Chart Patterns: A Must-know for every trader

Back in the days, the most prominent figures in Wall Street focused only on price action and price patterns. Computer trading wasn't that famous, hence one had to manually draw their own charts in a piece of paper or had to call the broker on a landline in order to ask for a daily chart of the price action. If you are complaining now that trading is difficult, we humbly suggest you take a step back and read history in order to understand how trivial your worries are (relevant to everything in life, not just trading).

Anyhoodles, which are the classic chart patterns to study and practice in real time?

  1. Continuation patterns: Bullish/Bearish Flags, horizontal channels, pennants, triangles, cup & handle;

  2. Reversal patterns: Double Tops & Bottoms, Rising/Falling Wedges, Head & Shoulders, Inverse Head & Shoulders, Diamond Top & Bottoms.

The above classic chart patterns coupled with point 1. market structure, will arm you quite well in trading without the need of technical indicators, therefore, get started right away in learning. We may provide some tutorials on how we utilize such patterns but not at the moment - meanwhile, take a look at this one -

3. Fibonacci Retracements: Trade with the Golden Zone

Finally, down to our favorite topic. Fibonacci retracement is a powerful tool that we use extensively for all types of trading styles but mainly for our daytrading approach. The most important Fib. retracement levels are the 50% & the 61.8%, which we call the Golden Zone and it usually serves as a great wall of support or resistance.

In order to draw the Fib retracement you need only 2 points which connect the swing lows and highs correspondingly.

Golden Zone Support (buy entries at point 4 & 6 - 1H timeframe - XAUUSD)

Connecting point 0 with 1 and getting the Golden Zone.

Golden Zone Resistance (sell entries at 2, 4 and 6 - 15 minute timeframe - USDJPY)

Connecting point 0 with 1 and getting the Golden Zone.

The Fibonacci Golden Zone works well in larger timeframe, especially 1H, 4H and is mostly a trend following system. It also work on the lower timeframe 5m, 15m but more time confirmation is needed. The only rule with the Golden Zone is:

  • For a sell: As long as candles manage to close below 61.8% retracement with at least 2 candles on the specific timeframe (ideally 15m, 1H), then sell with stop above the 61.8%;

  • For a buy: As long as candles manage to close above 61.8% retracement with at least 2 candles (ideally on the 15min, 1H timeframe) then buy with stop below the 61.8%.

4. Fibonacci Extensions: Project future price targets and reversal zones

The second most important tool is the Fib. extension points which help you project the next price target. After having identified the Golden Zone with the Fib. retracement and after the market has held that zone, you may start applying the Fib. extension/expansion tool to identify the next possible target. Two key Fibonacci extension levels are the 100% & the 161.8%.

In order to draw the Fin. extensions you need 3 points.

Let us take a look at an example which incorporates both Fib. retracement and extension levels together:

USDJPY 15 Minute Chart

USDJPY Fibonacci retracement and extension levels
  • Step #1: Identify the Golden Zone (as we did in point 3);

  • Step #2: Start drawing the Fib extension level by connecting point 0 with swing low at point A and connecting it with swing high at point B.

  • Step #3: Locate the price level at 100% extension and 161.8%. In most of the cases, 100% serves as you main take profit area.

Additionally, if we study the price action at points C-D-E, we can see that we have a Golden Zone + a Fib. extension pattern in place:

  • Step #1: Identify the Golden Zone by connecting low of C with high of D - we see that market held nicely at point E.

  • Step #2: Apply extension by connecting CD with low of E and getting your 2 targets.

  • Step #3: Place take profits at 100% & 161.8% respectively and the stop loss below the Goden Zone 61.8% retracement.

5. Elliott Wave Core Patterns: Understand market behavior and minimize risk

Last but not the least, start understanding market behavior through the Elliott Wave Principle (EWP) and its core 5 patterns. All the above topics we covered from 1 to 4 are incorporated into the EWP, hence, you will find it easier to understand the theory once you master first the classic chart patterns and Fibonacci retracement/extensions concepts. In a nutshell, the 5 core EW patterns are:

Elliott Wave Patterns
Courtesy of Elliott Wave International

You might want to read up on the following concepts as well:

Do you want to be part of the exclusive Virtual Trading Room and trade live with us? Take the Free-Trial in case you are new to our site here

Until the next time, Don't forget:

  1. To always prepare & analyze before executing a position;

  2. To know your risk before you execute the trade;

  3. To know the style of your trading: intraday vs. swing;

  4. To journal your trades - create your Book of Charts;

  5. To be a Mindful Trader!

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