Charting basics

You'd be amazed how quickly, just by watching the markets for a few days, you become absorbed by them, start to see patterns, and are able to make strong predictions. The biggest aid for making predictions are charts, and a lot of my trades were based on the live streaming charts of ADVFN and quote. The trick is to identify turning points, resistance levels, and overbought and oversold positions on a chart. To do this I used various technical indicators, but the three main ones I used were RSI, stochastics and MACD. (I use these for spread betting and share selection as well but that's a whole different topic). You don't really need to know what they are or how they're derived (although there's plenty of information on the net if you do), you just need to know how they can be used to find trading positions, ie backing high and laying back lower or vice versa in order to lock in profits.

I relied mainly on RSI and Stochastics, and used MACD only to confirm a position. As it's a lagging indicator, MACD shouldn't be used on it's own to make trading decisions. Set up a few charts yourself on ADVFN and look through historic records and you'll soon see patterns emerging which will help you make your own trading decisions in the future. On a very basic level if a share price or index level shows an RSI or stochastic of 20 or less then this suggests it is oversold and similarly an RSI or stochastic of 80 or above indicates it is overbought. Regarding MACD, you want to find crossovers either upwards or downwards, to back up these other indicators.Obviously there's a little bit more to it than that, but neverless just these basic indicators alone have proved very profitable over the years. Once you have mastered these basic indicators you might like to add additional indicators, such as moving averages for example, to improve your trading success rate even further. There's plenty of indicators you can experiment with in ADVFN.

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I like to apply these technical indicators to the Dow Jones to find profitable positions to take on the daily FTSE market, as they're so closely correlated. Quote is an excellent free charting facility which allows you to add these indicators to the Dow (INDU) chart (enter 5 in the "Len" box to get the best picture, and vary the interval from 5 to 30 depending on what time scale to want to analyse). It also provides two excellent additional indicators, tick and trin. These are a good indication of the general state of the market at a particular moment in time. Again you don't need an intricate knowledge of what these indicators are or how they're derived. All you really need to know is how you can use them to find profitable positions.

TICK: + and rising figure = bullish / strong market

- and decreasing figure = bearish / weak market

TRIN: < 1 = bullish / strong market> 1 = bearish / weak market

These two indicators shouldn't be used in isolation, but should be combined with RSI, Stochastics and MACD to identify strong trading positions. For example, let's say the FTSE was up just 1 point at 3.00 and you were looking to the Dow Jones for guidance on future movements. An ideal scenario would be one where all five of these indicators correlate to signal a strong buy (and therefore you may choose to back the FTSE up, either to hold until the end of the day, or to trade out for a profit later) or a strong sell (lay FTSE up / back FTSE down):
STRONG BUY: RSI and Stochastic = 20 or less
MACD crossover upwards
and increasing) tick, trin <
STRONG SELL: RSI and Stochastic = 80 or more
MACD crossover downwards
- (and decreasing) tick, trin > 1
To be absolutely positive about a trade you should use different time intervals for confirmation. In my experience the 1 minute charts aren't the best ones to use. The 5 minutes charts (and upwards), and their associated indicators are a lot more reliable.