Last Updated on 3 November, 2022 by Samuelsson
Learning technical analysis won’t take very long if you only want to learn the basic concepts. However, when it comes to technical analysis for profitable trading, there is nothing such as learning timeless profitable technical analysis.
We understand that this might be hard to grasp but we urge you to read on since it could be the most valuable realization you will have in a long time!
How New Traders Get Technical Analysis Wrong
Online and in books, there is an abundance of people teaching and preaching technical analysis of many sorts. It’s chart patterns, indicators, and other concepts that are supposed to make sense and guide you to profitable trading.
Most times when beginners ask how long it’s going to take to learn technical analysis, they mean how long time it takes before they’ve absorbed enough of the information that’s out there to start trading profitably for real.
Already from the beginning, they’re looking for things that don’t exist. You cannot learn to trade profitably by consuming the popular trading literature on technical analysis that’s out there.
Here is the reason.
What can be read about technical analysis are things that are said to hold an edge in the market. These patterns are presented as the final truth, and often times rational thinking is used to support the validity of the pattern.
Now, if there is anything you should know, it’s three things:
- Markets are in constant change
- Most market movements are random
- Markets aren’t rational
The first point means that what might work today, isn’t necessarily going to work tomorrow.
The second point means that most of what you observe is random noise, including the patterns that are thought to be certain indications of where the price is heading.
The third point means that the market seldom does what you think it will. Many times the very opposite of what you expect the market to do is true!
Now, summing up all these points, the idea of learning old patterns and logics online becomes way less alluring. Since it’s old, it might not even work anymore with the markets constantly changing character, if it has ever worked.
And since markets aren’t rational, you cannot expect to know what’s going to work through rational thinking.
Our Experience With Technical Analysis
We’ve tested many of the technical analysis concepts that exist only, and we can say with certainty that very little works as most people believe.
For example, take the bullish engulfing pattern. Most people believe that it’s a bullish pattern, but in our tests, we’ve found that it works far better to short the pattern than going long in many markets outside equities.
So if you cannot learn technical analysis by studying what’s said online, what should you do?
How Technical analysis Should Be Learnt Instead
Well, there indeed is technical analysis that works. Our trading strategies are centered around it and work well for us. However, it’s not the same technical analysis found online. Instead, we interfere with common conceptions, and experiment to find out what works and not.
Now, this doesn’t mean that our strategies are very complicated. On the contrary, most of the things we trade are quite simple, and could be understood by most people.
For us, technical analysis only is the way in which we define and quantify market behavior, and so it should be for you. And as with anything there is good and bad market behavior, and we want to find the one that’s good enough to hold an edge!
If you learn technical analysis with the goal of getting tools to help you to explore the markets through backtesting, you’re on the right track!
Related reading: How Long Does It Take to Learn to Day Trade?
What Technical Analysis Should You Learn?
While the common meaning that’s ascribed to technical analysis is mostly useless, the tools themselves are important to describe and quantify what’s happening in the market.
Here are some of the things we’ve found to be the most helpful in our own trading.
The RSI indicator is one of our favorite indicators, and is part of many of our trading strategies. It works by identifying oversold and overbought market conditions, and is used both for momentum and mean reversion trading.
Here is our definite guide to RSI
ADX is a trading indicator that measures the volatility in the market. Many trading patterns and strategies work better or worse in low or high volatility settings. As such, the ADX is great at filtering out trades in an already profitable trading strategy.
Here is our guide to ADX.
Volume is something that helps a lot with filtering out bad trades. It really is like adding a second layer to a trading strategy.
Here is our article on how to use volume in trading.
Don’t forget Regular Price Action!
You can come a long way by just comparing the different values of the bars to each other. We have trading strategies that use no indicators whatsoever!
As such, a trading entry like going long on 3 consecutive bullish bars with each bar having higher volume than the preceding bar, could be a great start on a trading strategy!
The Next Step to Becoming Profitable
Once you know how the basic technical analysis that’s needed to define and quantify market behavior, it’s time to get started building trading strategies. You will have to use backtesting to ascertain the validity of the trading strategies you build.
Doing so will put you ahead of the big masses and ensure that you have a real opportunity to become a profitable trader.
Related reading: How Long Does It Take to Learn Trading?
To build strategies and become profitable in the markets you do need to know some technical analysis. However, spending your time reading and watching others speak about indicators and patterns is a waste of time. That is, if you don’t test it yourself and elaborate on the things you learn!
The key to becoming a successful trader is to do your own analysis of the markets. You will be surprised to see how much that doesn’t work!