How Technical Analysis Can Help Kick The Irresistible Itch To Trade

technical analysis

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This past weekend while I was at the beach I spent the first night out on the porch drinking beer with my brother-in-laws.

Naturally we all forgot to apply ample amounts of bug spray - I'm sure you know where the rest of this goes right?

We got peppered with bits the next morning leaving the rest of the week hot, sunny and itchy. Common sense says that you shouldn't scratch because it will only spread. But our natural instinct is to scratch the hell out of them until it doesn't itch anymore.

Trading On Facts Not Itches

In all this drama, I found myself thinking of trading. What else is new. I freaking love the markets and am always looking for uncommon ways to help you all learn more about options.

Back to the point here. As traders, we often find ourselves trading as a way to facilitate an itch we have. Whether it's for money, free time, perceived power, a new car or whatever. There is something we need, and trading fills the void.

The reality is that we should not itch just because we can. We shouldn't make a trade just because the order is up, and we might make money on it. This kind of thinking we know wrong yet we continue to do it year in and year out.

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Learn To Trade ONLY After Confirmed Signals

Those of you who have been a reader for a long time know that I'm a fan of following multiple technical indicators. I don't use just one, but I also don't use 425 either.

After you have picked your favorite indicators teach you not to trade (itch that bug bite) unless you have a confirmed signal. Sure it may take a long time to show up and in the meantime you are just dying to itch that scratch you have - but hold fast.

On the SPX chart below you'll notice that sometimes it may look like you are going to get a signal but the market will then turn even faster in the opposite direction. Patience will help make the right decision more often than not.

A few good indicators will do just fine for what we need to accomplish. From there risk management will take care of the rest and ultimately separates the weak traders from the strong traders.

1 Cool Trick That Might Help

I'm sure as obsessed with the price chart of a stock as I am. But just for kicks, try to make a calculated decision without looking at the price chart. Remove the pricing history and just look at the indicators on a full screen.

At first you'll get freaked out and almost lost without the pricing data but after a while you'll find that you make a smarter decision without it. Try it in your paper trading account next month and see what the results are.

Free Coaching Session Up For Grabs

Just to make things interesting, via comments below add your best guess as to which chart I posted above without the price data. No repeat entries and the first commenter to guess correctly gets an hour free coaching session ($100+ value).

I'll give you one clue to help: it's a major ETF. Good luck!

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and two daughters.