Good morning, and happy Tuesday! Welcome to today’s edition of A Better Way To Wealth!
Several requirements are needed to convert pure technical analysis into money. The first and most important, of course, is to determine when a trend is beginning or ending.
The money is made by “jumping” on the trend as early as possible. Theoretically, this sounds simple, but profiting consistently is not so easy.
The indicators and measurements that technical analysts use to determine the trend are not crystal balls that perfectly predict the future. Under certain market conditions, these tools might not work.
Also, a trend can suddenly change direction without warning. Thus, it is imperative that the technical trader be aware of risks and protect against such occurrences causing losses.
From a tactical standpoint, then, the technical trader must decide two things:
First, the trader must choose when to enter a position. And second, they must choose when to exit a position.
Know When You’re Wrong
Choosing when to exit a position is also composed of two decisions. The trader must choose when to exit the position to capture a profit when price moves in the expected direction.
The trader must also choose when to exit the position at a loss when price moves in the opposite direction from what was expected. The wise trader is aware of the risk that the trend might differ from what they expected.
Making the decision of what price level to sell and cut losses before even entering into a position is a way in which the trader protects against large losses.
One of the great advantages in technical analysis, because it studies prices, is that a price point can be established at which the trader knows that something is wrong either with the analysis or the financial asset’s price behavior.
Risk of loss can therefore be determined and quantified right at the beginning of the position. This ability is not available to other methods of financial investing.
Finally, because actual risk can be determined, money management principles can be applied that will lessen the chance of loss and the risk of ruin.
In sum, the basic strategy to make money using technical methods includes the following:
- “The trend is your friend” — Play the trend.
- Don’t lose — Control risk of capital loss.
- Manage your money — Avoid ruin.
Technical analysis is used to determine the trend, when it is changing, when it has changed, when to enter a position, when to exit a position and when the analysis is wrong and the position must be closed. It’s as simple as that.
Our technical analysis chart of the day is Tesla, Inc. (TSLA), which is currently testing support.
Tesla is currently testing a known support channel area. The last time this blue support structure was tested, price formed the current channel width, offering approximately a 30% move in the stock price itself.
Price failed to close below the primary black channel structure just days ago, with price holding above the $820 price area.
If these support structures continue to hold, perhaps we’ll see another 30% rise in the price of Tesla.
The broader black channel has been developing and holding true since the March 2020 selloff. This channel structure is holding integrity for future price action thus far!
Rules to Live By
“Be the change that you wish to see in the world.”
― Mahatma Gandhi
Until next time, I wish you a beautiful and blessed day!
Yours In Trading Success,
Anthony Speciale Jr.