Hey sisters, let’s dive into a super hardcore topic today – technical analysis! Ever since I jumped into the finance world, things like K-lines, MACD, RSI… keep swirling in front of my eyes, making my head spin! 😵💫
Honestly, I was a total newbie to technical analysis at first, thinking it was all just voodoo and guesswork! But after years of trial and error, I’ve discovered that technical analysis, when used right, is actually amazing! But the key is, you have to understand what it really is and how to use it! 🤔
Today, I’m going to strip down technical analysis and see if it really works, and how we, as small retail investors, can use it to make money in the market! 💰💰💰
1. What the Heck is Technical Analysis? 🤔
Simply put, technical analysis is a method of predicting future price movements by studying historical price and volume data. It’s based on three main assumptions:
- Market action discounts everything. This means that all factors affecting the price (fundamentals, news, sentiment, etc.) are already reflected in the price, so we only need to study the price itself.
- Prices move in trends. Prices don’t jump around randomly, but rather move along certain trends (upward, downward, or sideways).
- History repeats itself. Past price movements will repeat, so we can predict the future by studying historical data.
2. Does Technical Analysis Really Work? 🤨
This question has been debated endlessly in the market. Some people think technical analysis is “fortune-telling,” while others believe it’s a “magic weapon.” My view is: technical analysis works, but it’s not a panacea!
Why does it work?
- Provides objective trading signals. Technical indicators can help us identify buy and sell opportunities and avoid emotional trading.
- Helps us identify trends. By observing price patterns, moving averages, etc., we can determine whether the current market is in an uptrend, downtrend, or sideways trend.
- Assists in risk management. Technical analysis can help us set stop-loss and take-profit levels to control trading risks.
- Improves trading win rate. Although it can’t guarantee profits every time, skilled use of technical analysis can improve our trading win rate.
Why is it not a panacea?
- Technical indicators have a lag. Indicators are calculated based on historical data, so there will be a certain lag, and they cannot fully predict the future.
- Susceptible to market noise. There are various false signals in the market, and over-reliance on technical analysis can easily lead to being “fooled” by the lines.
- Needs to be combined with fundamental analysis. Technical analysis is just an auxiliary tool and cannot be separated from fundamental analysis.
- Subjectivity. Technical analysis requires to be interpreted by indivisuals. The same technical formation can have different interpertation by different people.
3. How Can Small Retail Investors Use Technical Analysis to Make Money? 🤑
- Learn the basics. Familiarize yourself with various technical indicators (such as MACD, RSI, KDJ, etc.), K-line patterns, trend lines, support and resistance levels, etc.
- Find a trading system that suits you. Don’t blindly pursue complex indicators. Choose a few indicators that you understand and that suit your trading style, and build your own trading system.
- Combine with fundamental analysis. Technical analysis is for timing, fundamental analysis is for stock selection. Combining the two can increase your win rate.
- Strictly follow your trading plan. Develop a trading plan, set stop-loss and take-profit levels, and execute it strictly without making arbitrary changes.
- Control your position size and diversify your risk. Don’t put all your eggs in one basket. Diversify your investments and control your position size.
- Maintain a good mindset. During the trading process, stay calm and objective, and don’t be swayed by emotions.
4. My Practical Experience Sharing 🙋♀️
Personally, I prefer to use moving averages, MACD, and volume for analysis.
- Moving Averages: I mainly look at the 5-day, 10-day, 20-day, and 60-day moving averages. Moving averages help me identify trends and find support and resistance levels.
- MACD: I mainly look at the MACD golden cross, death cross, and divergence. MACD helps me judge the strength of the trend and find buy and sell points.
- Volume: I mainly look at the expansion and contraction of trading volume. Volume can help me judge the reliability of the trend and identify false breakouts.
For example 🌰:
I once successfully caught a big bull stock using technical analysis. At that time, the stock price broke through the 60-day moving average, the MACD showed a golden cross, and the trading volume also increased significantly. I combined it with fundamental analysis and found that the company’s performance was growing rapidly, and the industry prospects were also good. So I decisively bought in, and in the end, I made a lot of money! 😎
Of course, I’ve also stepped into many pitfalls. For example, once I saw a stock’s MACD showing a bottom divergence, and I thought it was going to rebound. But after I bought it, the stock price continued to fall, and I ended up taking a loss. 😭
So, technical analysis is not a panacea. We need to constantly learn and practice to improve our trading skills.
5. Some Advice for My Sisters 💖
- Don’t blindly believe in technical analysis. Technical analysis is just an auxiliary tool, don’t treat it as a “holy grail.”
- Don’t overtrade. Frequent trading will not only increase commission fees but also affect your mindset.
- Don’t chase the rise and kill the fall. Chasing the rise and killing the fall is one of the main reasons why retail investors lose money.
- Keep learning. The market is constantly changing, and we need to keep learning to adapt to the changes.
- Be patient. Investing is a long-term process, don’t expect to get rich overnight.
In short, technical analysis is like a double-edged sword. If used well, it can help you overcome obstacles, but if used improperly, it may hurt you. Sisters, be sure to keep your eyes open and use it with caution!