How did you get involved in trading, and when did you become interested in technical analysis?
I was a banker, working in Treasuries, bonds, FX and options both in Ireland and on the continent. I moved into spread-betting, and became very interested in technical analysis. I also started to use it in my own trading. I’m no purist: I bring fundamentals into how I study the markets as well, but it’s a useful tool for understanding what’s going on.
You’ll be chairing a discussion about technical analysis at City A.M.’s Active Trader Conference on 21 June. What do you expect to discuss?
Basically, the simplest way to approach technical analysis is that it’s risk/reward. It’s about finding a trade that provides a certain amount of profit that exceeds the risk you put on by at least two times.
I don’t have any truck with exotic techniques – simpler is better. It’s about finding key support/resistance trend lines and the odd moving average. There is no system that will work every time, but you can read the market and ascertain what could happen. For example, there was recently an element of doubt over the euro – a feeling that it could drop to new all-time lows. But support levels came in. If you’d believed the fundamentals and ignored resistance levels, you would’ve made a mistake.
What place does it have in a trader’s tool kit?
There are limits. If you give two technical analysts a chart, they will come out with different drawings and different views: it’s an art, not a science. It’s still about how you manage risk.
What advice would you give trading novices on technical analysis?
It’s important to start small, and to avoid more volatile markets like FX and some indices. If you want to try it out, start with the smaller priced shares, look for support/resistance levels, and look for breakouts. You won’t necessarily make huge amounts of money, but it’s a good opportunity to try out some of the basic principles of technical analysis and how it can be applied to trading.
Brenda Kelly is market strategist at IG Group.