The Nasdaq 100 Index has been moving sideways for almost half a year, and its price action has started to look increasingly weak. Many people ask: is this the beginning of a trend reversal, or just a consolidation before the next leg higher?
Questions like this are exactly why technical analysis exists.
But what I want to talk about today is not drawing a few lines or looking at a few indicators to “predict the future,” but rather, how you should actually use technical analysis correctly.
Technical analysis is not just about reading charts
As a trader, technical analysis is something I definitely use.
But the real question is: do you use technical analysis to predict, or to manage risk?
Many people stay only at the first level — looking for patterns:
head and shoulders
support and resistance
breakout and retest
But what really matters is not the pattern itself. What matters is: when the pattern fails, how do you respond?
The market will never move exactly as you expect 100% of the time. When “the weather does not turn out as forecast,” the most important thing is not persistence, but this: admit you are wrong, and start again.
How do I use technical analysis?
The technical analysis I use is actually closer to a mathematical model.
The focus is not on “drawing charts,” but on:
identifying significance in price and volume
aligning that with the broader trend
then setting clear entry and stop-loss levels
This part can get quite complex, and I can go into more detail another time.
But the core idea can be summed up in one sentence:
it is not about guessing direction, but about building a framework that can be executed repeatedly.
How technical analysis should be used
If you ask me how technical analysis should be used, I would break it into three steps:
1️⃣ Build a model and clear rules
First, define your rules, such as:
what inputs you use (price, volume, moving averages)
under what conditions you enter
under what conditions you exit
👉 Without rules, there is no trading system.
2️⃣ Do backtesting
Test your strategy on historical data:
what is the win rate?
what is the risk-reward ratio?
what is the maximum drawdown?
👉 Without testing, everything is just a feeling.
3️⃣ Validate it in live markets
Put the model into the real market:
see how it performs in actual execution
observe the impact of psychological factors
use data to refine the model
👉 The market is the ultimate examiner.
The most important step: risk management
No matter how good your model is, it will be wrong sometimes.
And what truly determines whether you can survive in the long run is not how many times you are right, but how much you lose when you are wrong.
That is why:
stop loss
take profit
position sizing
These are your real edge.
Back to the original question
So is the Nasdaq in danger now, or is it an opportunity?
The answer from technical analysis is actually very simple:
I do not know.
But what you can do is:
define your entry level
define your stop-loss level
wait for the market to give you the answer
One final line
Technical analysis is not only for “predicting the market.” More importantly, it is there to save you when your prediction is wrong.