How I Got Started Using Technical Analysis to Identify Stock Trades

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I’ve found that technical indicators like chart patterns are a great tool to help identify possible entry points on a stock or an option. There are many different patterns that professionals and amateurs alike use to identify entry points on different stocks — the stock chart isn’t your ultimate key to riches but the information from it along with your understanding of the general market and other factors can help you make profitable decisions in the stock market.

Inspired by my Dad & reading through “How to Make Money in Stocks” by William J. O’Neil was what got me hooked on investing. The first time I skimmed through O’Neil’s book was when I was a kid. Back then I didn’t understand as much of it and ultimately retained something along the lines of “hey there are charts and they can tell you things maybe I should look at them.” I made a mental note to pick up the book again before I started trying to invest.

In my last year of university I actually read through the book (or at least more than I did the first time!) and started my own paper trading account that I kept in Excel. After using Investor’s Business Daily’s free trial I picked a few stocks and started monitoring them daily. I got discouraged when the stock market took a bit of a hit for a couple of months and didn’t look at my stocks again until the end of the year, when I happily realized that those picks had beaten the market that year. Too bad I didn’t actually buy them! That was my own call to action and the lesson that showed me that I could pick good stocks too.

Although I use chart patterns as a tool I don’t see them as the ultimate key to riches. However, I will jump and buy a stock based on a pattern that I see over whatever comes out in the news any day! I prefer swing trading over long-term investing because I can always do the math after the fact to see how much money I would have made if I had just held on to the stock. Every time I do this I prove to myself that swing trading isn’t the correct answer and long-term investing is, but I am never able to take my own advice 😊

I found that chart patterns are really encouraging to use when I was just getting started in investing because they gave me validation in the short-term that I was making the right decisions and I always felt like I was in control. Looking for the common “cup with handle” pattern that William O’Neil describes in his book how to make money in stocks helped me identify a lot of entry points to purchase stocks. Even just keeping a list of stocks in my Excel file that seemed to exhibit “cup with handle” properties and tracking them over time was validating for me as well because it seemed like more often than not the stocks did go up.

From what I’ve found identifying the “cup with handle” pattern can be difficult at times because it’s up to your interpretation, I recommend reading O’Neil’s description in his book or checking out other sources online like Investopedia.com to learn more about it. In addition to the methodology that O’Neil outlines in his book there are a few factors that I pay the most attention to: what is the state of the overall stock market & are there any potential indicators of resistance in the stock chart itself.