Upon completing this chapter, you should be able to:
This chapter introduces the concept of risk capacity and how market participants align their trading and investment objectives in accordance with the level of risk that they can comfortably tolerate. The definition of risk capacity in trading is also discussed in terms of price, time, and risk size. The concept of whether a market participant is risk seeking and aggressive, or risk averse and conservative, is also covered in detail. Organizing, categorizing, and summarizing technical data is an important prerequisite for preparing the groundwork for effective and efficient technical analysis. Various charts are used to illustrate how this can be done methodically. The proper evaluation and application of signals and triggers is also demonstrated via chart examples of a popular stock and its relevant index.