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How to Use Technical Analysis the Right Way.

Stop using Technical Analysis the wrong way and follow these tips.

Sofien Kaabar, CFA
14 min readSep 1, 2020

Technical Analysis is a fascinating way of analyzing markets. It serves as a great complementary tool to Fundamental Analysis and it relies mostly on charts and indicators. Unfortunately, many retail traders misuse it, thus, causing catastrophic results and giving it a bad name. Technical Analysis is now regarded as a pseudo-science rather than a serious skill. This is of course not the case. My personal and professional experience with it prompted me to start writing about the correct way of using it.

I have just published a new book after the success of New Technical Indicators in Python. It features a more complete description and addition of complex trading strategies with a Github page dedicated to the continuously updated code. If you feel that this interests you, feel free to visit the below link, or if you prefer to buy the PDF version, you could contact me on Linkedin.

Always Start on the Higher Time Frame.

When performing Technical Analysis, you should remember that the higher time frame supersedes the lower time frame. This means that a monthly resistance is stronger than a weekly resistance which in turn is stronger than a daily resistance. How is this important? Well, sometimes, you will find that on a daily time frame (i.e. daily bars), the market is on support but is also close to a monthly resistance. This is a dangerous setup and you’re most likely facing resistance than lying on support.

Whether it’s a graphical or a mathematical support/resistance level (e.g. Bollinger Bands level), you must always take this into account so that you’re coherent across your trading framework. Here’s an example to illustrate what I mean:

EURGBP Monthly close to Graphical Resistance.

The above chart is using monthly price bars and we can clearly see a resistance level around the area of 0.9300. However, on the below chart that uses weekly closes, we can see a support on…

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Sofien Kaabar, CFA
Sofien Kaabar, CFA

Written by Sofien Kaabar, CFA

Top writer in Finance, Investing, Business | Trader & Author | Bookstore: https://sofienkaabar.myshopify.com/

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