This morning during my Premarket Prep, as I was looking at the stock chart for a potential play, I noticed a technical support line that I had drawn about a month ago…
And today that same stock was bouncing off that line exactly the way I predicted it would when I first drew it.
What makes this story worth telling is that it proves that technical analysis truly does work!
I say it over and over again and this morning the proof was in the chart.
Technical analysis is how traders study price action — by analyzing a stock’s movements, the overall market, and recognizing patterns using historical data.
And it works because stocks often behave in similar ways over time. Patterns become a blueprint for decision-making.
Many traders avoid using technical analysis because they don’t want to put in the extra effort…
Marking up charts and studying the data and patterns sets you up for smart stock trading.
If you don’t do it, you’re just randomly entering trades, and your results are just as random.
The good news is that I’m convinced anyone can do it. It just takes extra work and discipline.
And I’m going to show you how to get started…
Table of Contents
Why Use Technical Analysis?
Here are the primary reasons you should be using technical analysis in your trading:
Visual Data Representation:
The visual aspect gives traders a unique perspective on stock price action that they wouldn’t get from fundamentals alone. You can actually see market psychology at work—the fear, the greed, all reflected in those price movements.
Quick Trend Identification:
Technicals allow you to quickly determine if a stock is in an uptrend, downtrend, or consolidation. You need to get this information fast, especially when time is of the essence.
Strategic Entries and Exits:
When you’re trading in the short term, technical analysis is the best way to find smart entry and exit points. Fundamental analysis can’t do that.
My Top Picks for Technical Indicators
I’m going to introduce you to five essential indicators for a strong foundation.
This isn’t the be-all-end-all—once you get consistent, you can start adding more data points.
But be careful…I’ve seen charts so overloaded with technical indicators that it looks like a bowl of spaghetti.
There’s a delicate line between having just what you need and having too many indicators. Too many create unwanted noise and cause confirmation bias.
Volume:
This is one of the most basic but also most important indicators.
The key here is unusual volume. If a stock’s volume starts surging, something is going on. It doesn’t guarantee an all-day run, but it definitely ups the odds. It can even push a stock into a multi-day run.
Bright Minds Biosciences Inc. (NASDAQ: DRUG) had a massive spike from less than $1 per share to near $60 last Tuesday. It’s no coincidence the volume spiked with it.
DRUG Intraday, 5-Minute Candles Chart; SteadyTrade
I like to use the 60-day average volume as a baseline. It gives you a solid, recent snapshot without going too far back. Things change fast in this market. Keep it current.
Candlestick Charts:
If you’re still using line charts, it’s time to upgrade to candlesticks! You’ll be so much cooler!
Candlestick charts give you much more information. Each candle gives you the open, high, low and close price during that time period (1 minute, 5 minutes, etc.)
With that information, you can see how a stock reacts at key levels.
Below are two charts of DRUG during the same time period.
One is a line chart and one is a candle. Even at first glance, it’s easy to see that candles provide much more data and a deeper level of analysis.
DRUG Intraday Line Chart; SteadyTrade
DRUG Intraday, 1-Minute Candles Chart; SteadyTrade
VWAP (Volume Weighted Average Price):
VWAP is hands down my favorite indicator and probably the most important one you’ll ever use.
It combines volume and price action, giving you a clear view of whether a stock is trending bullish or bearish.
Above VWAP, you’re in bullish territory. Below VWAP, bearish.
It’s simple but powerful: If you’re long and the stock drops below VWAP, it’s a sign to exit; If you’re short, and it drops below VWAP, it’s an entry point.
You can see in this DRUG chart on the day of its first spike how it traded above VWAP, and below it after the stock reached its high the day before.
DRUG 2-Day, 5-Minute Candles Chart;SteadyTrade
High of Day/Low of Day:
I use these to gauge key levels. You can use whole dollar, half-dollar levels to spot potential breakouts or areas to avoid.
If a stock breaks the high, it’s a green light to get aggressive. You might want to stay away if it breaks the low.
Opening Price (Red to Green/Green to Red):
Always watch for the red-to-green candle, or green-to-red candle move. This is a powerful signal.
A stock moving from red to green, especially after a weak open, can signal a big momentum shift.
Take a look at Aptevo Therapeutics Inc. (NASDAQ: APVO), which had a huge pop on Tuesday. Note the red-to-green candle shift at the start of the spike.
APVO Intraday, 1-Minute Candles Chart; SteadyTrade
How to Apply These Indicators
To get started, you’ll need a robust trading platform.
Not all platforms are created equal, so make sure yours includes charting, all the indicators above and drawing tools.
Embed https://www.youtube.com/watch?v=umvsj24p8xY
StocksToTrade is my top pick. It has everything traders like me look for in a platform. It also has a selection of add-on alerts services, so you can stay ahead of the curve.
Grab your 14-day StocksToTrade trial today — it’s only $7!
My Final Thoughts…
Beyond tools, you need knowledge—and that only comes with practice and time. The more you use technical analysis, the sharper your eye will become for spotting patterns and setups. That’s how you make smarter, data-driven decisions.
So embrace the technicals. Study the charts. The more you put into it, the more you’ll get out of it.
To increase your knowledge of technical analysis and more, join our StocksToTrade community.
We have tons of free live webinars.
They run all day and offer trading tips and tricks, info on our Oracle trading system, and other valuable training.
If you want to learn more about how I use technical analysis in my trading as well as access to my multiple watchlists, consider joining my StocksToTrade Advisory service.
Every STT Advisory member gets a monthly newsletter with my top stock picks, three weekly videos that show what stocks are on my radar, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great weekend, everyone. Don’t forget to watch out for my 5-Stock Weekly Watchlist coming to your inbox on Sunday!
Tim Bohen
Lead Trainer, StocksToTrade