The Trading Edge, 15% of the equation

I will presume most of you are familiar with technical analysis, as a way to analyze and try to forecast future price movement. The way I see it, technical analysis provides a conceptual framework with which to organize the chaos of the auction process which is the market. TA will aid in analyzing the supply and demand forces that will ultimately determine the traded price.(present and future)

Following is what I think are essential building blocks to mastering this art of technical analysis and its application for the budding daytrader.

(This is a work in progress, so I hope you will bear with me)

1 Trend. The adage among traders is 'Trade with the Trend'. 'Buy low Sell high'.
Trend is defined as a series of higher highs and higher lows (uptrend), or correspondingly a series of lower lows and lower highs.(downtrend)

2 Markets will trend (make directional movements) only 40% of the time. The other 60% is spent consolidating with the battle between the supply and demand of the buyers (bulls) and sellers (bears)

3 Dow theory provides a good framework from which to analyze the markets. Consolidation is where the 'big boys' do the trading, accumulating the position they want to take. When the other side of these accumulator's positions near exhaustion, the market makes a breakout and start trending. In effect, there will be 3 types of trade the trader can execute in the quest for profit.

• The accumulation phase
• The breakout from that accumulation phase
• jump on the trend sometime after the breakout and try to catch a piece in the middle.

In reality, the daytrader (small fry) will only realistically participate in the latter 2 of the 3 types of trade. The trader thus seeds this trading edge to capture these trades with a higher degree of probability.

Herein technical analysis will provide the tools to organize the trader's effort to gain this trading edge.