Using Technical Analysis to Gain Edge

Posted on Thursday, January 9, 2020 at 4:28 PM

I work with traders all the time on how to decide what strategy to consider. To me, it all starts from the chart and the key is to look at different time periods. Technical analysis can give all traders an edge. By doing this properly, you can put the odds on your side. Let’s look at an example I recently went over with one trader.

I showed him this chart below and asked him to tell me what he saw.

He proceeded to tell me the stock gapped up recently and is now trading in a channel. I agreed with his assessment. I then asked him, is this chart bullish or bearish? He didn’t know how to answer. Knowing resistance has a better chance to keep the stock from moving higher around the $145 level, I told him that it is more neutral to bearish. That being said, I added, if you think the stock will move higher, you may want to wait until there is a trigger.

Below is a 15-minute chart of the same stock.

You can see that the stock has never closed above the resistance level around $145 even once. So, if I were going to look for a bullish trade, I would want the stock to make a 2-bar close (essentially 2 consecutive bullish candles in a row above resistance) above resistance. And by the same token, if I were going to take a bearish trade, I would exit that position with a 2-bar bullish close.

Wrapping this up, a chart does not necessarily need to be bullish, bearish or neutral. Many times, a case can be made for each. The key is to know what levels need to be violated or not violated to confirm your thoughts. This is something that takes time to master.

John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.

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