Many of us would like to be experts in Equity chart analysis. Many feel it is quite easy. However, it is the quite opposite as analyzing any chart requires balance of mind, keen eye for detail, technical knowledge and ability to correlate. All of these are life skills and everyone knows that these skills are only honed with time and practice. One should not expect to be a master in few months. Below are few points, which I have tried to explain. These will surely build your expertise in chart analysis.
Understand your trading style
Understanding your trading style will depend on your trading capital, trading comfort, objectives, time availability and charting software. The most important are the first 4. It is best to start small and focus on your comfort level during trades. Do you like day trades, swing trades or positional trades? Is day trading too volatile for you? Can you monitor the markets for the entire day? Do you work full time? Is sufficient capital available?
When you are ready with the above questions, decide your trading style. You may also want to adopt multiple styles and it is ok as long as one is clear. If I give my example, I am more comfortable with swing trades due to a full time job and other priorities. Also, intraday trading is hectic for me, as it requires one to be on his feet during the entire market hours. I obviously cannot as I also have my office hours during that time. Thus I decided that day trading is not for me during my work hours. Another drawback was that, I felt constrained to manage my trades. I was able to predict the move correctly but timing was an issue and would generally overspill by a day or 2. Be aware about your strength and weakness and plan accordingly.
Start observing charts
A good way is to start observing charts daily of NIFT 50 daily. Do it for 2–3 months and you will start observing trends. Focus where the stock starts going upward and downward and you will get to see predefined levels. These are usually called support (Demand zone) and resistances (supply zone). When observing charts, thing in terms of trader psychology and try to predict fear and greed levels.
Observe the volumes when there is a breakout. Does the volume reduce during retracement? Also see how many times is tried to break out. Volumes will tell the entire story. When observing charts also try to visualize different paths a stock price can take. Have different plans for different scenarios in your mind.
Paper trade for 1–2 weeks
Now once you have started observing, write down on paper the stop loss, buy prices, sells prices for 1–2 weeks. Are you able to get the entries correct? Is your stop loss hit frequently? Do you tend to get anxious or euphoric during the trade? Can you maintain a balanced frame of mind? When paper trading also note down your mistakes. Was the entry price too high or too soon? Could you have waited for a retracement? Write the learnings along side and try not to repeat the mistakes. Note down the different scenarios that can emerge and have plans for each. E.g. Exit and stop loss plan. One by one you would have eliminated all the mistakes in a few months.
Practice, practice and practice
Practicing is the key here. During practice, buy only 1–2 stocks and replace this with paper trades you were doing earlier. This is called dipping your feed in real waters. During a real trade, emotions can be very different from paper trading. Practice should be a minimum of 6 months, if you don’t have any exposure in the market. Notice your emotions during a trade and make note of it. Only when you are able to have a balanced mind and not euphoric or depressed with the trade outcome, only then you can feel assured that the journey is going in the right direction. Start increasing your positions only once you have preserved your capital for the entire during and you are not in negative.
During the 6 months learn from various resources available on the internet. Zerodha Varsity is a popular resource to start with. If you are able to complete all topics, you can expect to know everything about the markets in theory. Remember, nothing can beat practice. Do mindful learning and observe, if these apply on the charts. Make notes for yourself and keep revising them.
For learning one can also choose a good mentor, who can handhold and show the way. Of course they will charge a fee but it is still better as it will prevent you from making expensive mistakes.