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I've been going through the OIC Education Courses recommended by @jaydles in another question about learning options. I'm about halfway through, I've learned a lot about how the stock market works and I've excited about taking this to the next level and starting to do some paper trading.

After doing some research I found that my current Fidelity account gives me access to some analysis tools. I also found that Fidelity's tools get a pretty good grade from reviewers on the internet compared to others. What's missing, in my opinion, is any knowledge or skill at using these tools.

Am I correct at looking at this as the next stage of my education? Are there programs or tools that are geared towards teaching technical analysis? I doesn't look like this is within the scope of the OIC Education courses.

  • Just get the classic book on candlestick charting by Steve Nison. But realise that trading is very much like weightlifting. Words mean utterly nothing. You have to physically do it. One trade is worth 1000 books. – Fattie Jun 11 '16 at 21:33
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+50

A lot of investors prefer to start jumping into tools and figuring out from there, but I've always said that you should learn the theory before you go around applying it, so you can understand its shortcomings.

A great starting point is Investopedia's Introduction to Technical Analysis. There you can read about the "idea" of technical analysis, how it compares to other strategies, what some of the big ideas are, and quite a bit about various chart patterns (cup and handle, flags, pennants, triangles, head & shoulders, etc). You'll also cover ideas like moving averages and trendlines.

After that, Charting and Technical Analysis by Fred McAllen should be your next stop. The material in the book overlaps with what you've read on Investopedia, but McAllen's book is great for learning from examples and seeing the concepts applied in action. The book is for new comers and does a good job explaining how to utilize all these charts and patterns, and after finishing it, you should be ready to invest on your own.

If you make it this far, feel free to jump into Fidelity's tools now and start applying what you've learned. You always want to make the connection between theory and practice, so start figuring out how you can use your new knowledge to generate good returns.

Eventually, you should read the excellent reference text Technical Analysis of the Financial Markets by John Murphy. This book is like a toolbox - Murphy covers almost all the major techniques of technical analysts and helps you intuitively understand the reasoning behind them. I'd like to quote a part of a review here to show my point:

What I like about Mr. Murphy is his way of showing and proving a point. Let me digress here to show you what I mean: Say you had a daughter and wanted to show her how to figure out the area of an Isosceles triangle. Well, you could tell her to memorize that it is base*height/2. Or if you really wanted her to learn it thoroughly you can show her how to draw a parallel line to the height, then join the ends to make a nice rectangle. Then to compute the area of a rectangle just multiply the two sides, one being the height, the other being half the base. She will then "derive" this and "understand" how they got the formula. You see, then she can compute the area under a hexagon or a tetrahedron or any complex object.

Well, Mr. Murphy will show us the same way and "derive" for us concepts such as how a resistance line later becomes a support line! The reson for this is so amusing that after one reads about it we just go "wow..."" Now I understand why this occurs".

Murphy's book is not about strategy or which tools to use. He takes an objective approach to describing the basics about various tools and techniques, and leaves it up to the reader to decide which tools to apply and when. That's why it's 576 pages and a great reference whenever you're working.

If you make it through and understand Murphy, then you'll be golden. Again, understand the theory first, but make sure to see how it's applied as well - otherwise you're just reading without any practical knowledge. To quote Richard Feynman:

It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.

Personally, I think technical analysis is all BS and a waste of time, and most of the top investors would agree, but at the end of the day, ignore everyone and stick to what works for you. Best of luck!

  • I think this is a fantastic answer. Thanks for being so thorough. I also appreciate your opinion on this matter. When I first started exploring this I didn't realize that the concept of technical analysis was somewhat controversial. As I began exploring what I thought I needed to be doing, I found this out pretty quickly though. I'm still not clear why this is though. I'll post this as a separate question. – Shane Aug 10 '11 at 19:59
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    @BlackJack, does your last sentence mean that personally you think that all those resources you introduced are BS because they are talking about technical analysis which is BS and a waste of time? – Pacerier Nov 27 '13 at 9:38
  • Lovely answer, except for the last point " I think technical analysis is all BS and a waste of time, and most of the top investors would agree" ... a bit of a gross generalisation – Marcus D Apr 26 '16 at 12:51
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A great way to learn is by watching then doing. I run a very successful technical analysis blog, and the first thing I like to tell my readers is to find a trader online who you can connect with, then watch them trade. I particularly like

  1. Adam Hewison, Marketclub.com - This is a great website, and they offer a great deal of eduction for free, in video format. They also offer further video based education through their ino.tv partner which is paid. Here is a link that has their free daily technical analysis based stock market update in video format. Marketclub Daily Stock Market Update

  2. Corey Rosenblum, blog.afraidtotrade.com - Corey is a Chartered Market Technician, and runs a fantastic technical analysis blog the focuses on market internals and short term trades.

  3. John Lansing, Trending123.com - John is highly successful trader who uses a reliable set of indicators and patterns, and has the most amazing knack for knowing which direction the markets are headed. Many of his members are large account day traders, and you can learn tons from them as well. They have a live daily chat room that is VERY busy.

The other option is to get a mentor. Just about any successful trader will be willing to teach someone who is really interested, motivated, and has the time to learn.

The next thing to do once you have chosen a route of education is to start virtual trading. There are many platforms available for this, just do some research on Google. You need to develop a trading plan and methodology for dealing with the emotions of trading. While there is no replacement for making real trades, getting some up front practice can help reduce your mistakes, teach you a better traders mindset, and help you with the discipline necessary to be a successful trader.

  • Links are down.... – Pacerier Nov 27 '13 at 9:41
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I recall the name Martin Pring. As my fundamental analysis book from grad school was the work of Graham and Dodd titled Security Analysis, Pring was the author of the books I read on technical analysis. If you've not read his work, your education has a ways to go before you hit the tools.

  • I looked up Martin Pring and it looks like Technical Analysis Explained is kind of a standard book on this subject. I'm a little turned off by all the reviews that say how poorly it's written. I guess this is what's available though? – Shane Jun 14 '11 at 22:39
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    I got my masters 20 years ago, it's a bit fuzzy. I recall thinking I disagreed with the topic itself, but this was a well respected author at the time. – JoeTaxpayer Jun 15 '11 at 0:03
  • Are you saying that you disagree that Technical Analysis has value? – Shane Jun 15 '11 at 18:52
  • Can I just say it wasn't for me? I'm not in a position to critique it, not 20yrs after having it as a topic of study. – JoeTaxpayer Jun 15 '11 at 19:48
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    Judging from the number of responses to this question, and only two up-votes on my question, I'm guessing you're not the only person with a different opinion on investment strategy. I wish some other folks would chime in. I really don't have enough information to form an opinion either, it just seemed like the thing to do based on what I've been reading so far. – Shane Jun 15 '11 at 23:38
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Recommended? There's really no perfect answer. You need to know the motivations of the participants in the markets that you will be participating in.

For instance, the stock market's purpose is to raise capital (make as much money as possible), whereas the commodities-futures market's purpose is to hedge against producing actual goods. The participants in both markets have different reactions to changes in price.

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