Category: Technical Analysis


The Use of Charts in StockMarket Trading

Filed Under: Technical Analysis, Uncategorized by Bill — Comments Off
March 9, 2011

For people who trade in the stock market, stock charts play a useful role as an aid to decision making for such things as when to enter or exit a stock trade. Trading, as opposed to investing, usually involves a short term approach that looks mainly for the price appreciation of a given stock position, something that can occur quickly as the market in general, or a stock in particular, reacts to events taking place.

But the analysis and interpretation of stock charts requires special insights and aptitudes that enable recognition and identification of patterns of price movement, volume, and other attributes that have occurred in past trading activities and that have become accepted as being fairly reliable indicators in the future movement of stock prices.

Trading is a speculative endeavor, and if a trader is able to predict a price movement, or have a good possibility to do so, it provides a special edge that plays a big part in reducing the inherent risks of trading. Stock chart analysis is not a science but merely a useful tool that requires obervations of interrelated stock activities that can be more readily be  discerned by their depiction in graphic pictorial form, rather than as bunch of numbers

Traders also usually take a mainly short term approach to operating in the market, often with a time horizon of 6 months or less in which to be in and out of a stock position. They tend to pay little attention to fundamentals, such as company payment of dividends, future growth and company value. Their objectives as traders are usually to find stocks that change in price within a short term period, either a gain in price or a loss in price, that can be signalled on stock charts and identified by examining such indicators as moving averages or resistance and support breakouts among others. In the course of a year they are likely to make many more trades that would an investor.

Trading in the stock market can be an interesting experience but to have success it is essential to gain an understanding of how the market works and how trading risks can be managed to minimize losses and to capture maximum gains when they occur. For more on this subject, where stock charts are used to illustrate some of the topics, visit Stock Market Basics and for more on stock charts, check out About Stock Charts on that site.

Permalink

Using Triangle Patterns For Technical Analysis

Filed Under: Technical Analysis by Bill — Comments Off
June 23, 2010

The stock chart pattern is a form of buying as well as the selling rules in technical analysis stock trading. These patterns will provide the trader a significant confirmation of the next potential trend move that will occur. Patterns are one of the most accurate, but they are also an uncomplicated technical analysis tools. The patterns are those that would be materialized on the charts that can provide a trader with forecasting tools of coming price movement. There are some patterns that are more accurate compared to other price forecasting.

One of which would be the Triangles, they are actually some of the most familiar chart patterns that are being used within the technical analysis  of today. There are three kinds of triangles which are the ascending triangle, descending triangle, and lastly the symmetrical triangle. While the forms of these triangles are notable of having greater significance in pointing the direction that the market would move and when it would break out of the triangle.

The shape of the triangle is somewhat significant but the direction is even more significant.  The ascending triangle is formed from the market making higher lows and the same level of highs.  The descending triangle is formed from lower highs and the same level of lows.  This type of pattern will usually be seen as a downward trend.  The last type, the symmetrical pattern is formed from lower highs and higher lows.

The main reason behind why these patterns are so infamous would be the ease that you would make out as well as the reliability of the market indicators. The technical stock traders should show caution in utilizing them in advance. However, the use of triangle patterns is not 100% accurate but rather it can be closer to 75% reliable. On the other hand, this is important for a trader to place a stop loss.

Permalink

Diversifying Your Investment Portfolio

Filed Under: Investment Strategy, Technical Analysis by DeMerchant — Comments Off
September 28, 2009

It is important to diversify your investment portfolio, especially since the market fluctuates from day to day. When you diversify you are creating a type of hedge against the chance that other investments may not do as well as others. This offsetting strategy will not prevent you from losing money in the long run, but it will definitely prevent you from losing more than you would have expected. Using diversification you are yielding to the old phrase of, “not putting all of your eggs in one basket.” This basically means that the risk is spread across a broader range of investments, to better shield your money in times of a market decline. The next step would be to figure out which baskets your eggs should be in, based on your financial goals and needs.

Asset allocation is the best strategy when diversifying a portfolio. With the asset allocation method you will find a diversified mixture of investments that will balance out your level of risk tolerance to the financial goals that you want to reach. This is important because not all asset classes perform the same from year to year. One great benefit of diversification using asset allocation is that investors will avoid the temptation of timing the market. When investors try and time the market they may only invest in those assets that are performing the best, or even worse they are investing only in the assets that are doing the worst thinking that over time the prices must go up. These mistakes can make you jump in and out of the market and therefore missing some time frames where the investments were increasing tremendously; so now you are paying the premium price to get back into those better performing assets.

If you are unsure of your diversification needs then you may try either speaking with a financial adviser or checking online with a reputable stock investment company. If you prefer the face to face conversation then a financial adviser would be the best route. This way you will get a personal look at who is controlling your money and if they accurately understand what you want to do with your investments. You will first be asked general questions regarding to age, income, withdrawals, retirement and investment experience. All of these factors contribute to correctly diversifying your portfolio. Not everyone has the same financial needs or desires; therefore each diversification process is unique and individual. There are many financial circumstances that will tell the adviser whether you are a conservative, moderate, or aggressive investor. If you are more conservative you will be places into investments with more bonds than stocks and other volatile investments that people trade with foreign currency trading software. If you are more moderate you will have an equal balance between all investments or anywhere around sixty percent stocks forty percent bonds etc. If you are an aggressive investor you will be given somewhere around eighty percent stocks twenty percent bonds so that there will be excessive potential for growth in the investment. Only serious investors should diversify aggressively, because although there is the potential for rapid growth there is also the potential for a great decline as well.

Online stock investment companies are also a great way to diversify your portfolio. Choose a reputable company such as Scott Trade, Forex, or TDAMERITRADE to make sure you are getting the quality for the money. They can also provide you with some stock software. These companies will go along with the same guidelines that the financial advisor would, so be sure to state your risk tolerance in the beginning. Some investors may find investing online a quicker and easier task that trying to track down and stay in touch with a financial advisor. You will automatically have up to date stock information and can buy, trade, or sell stocks as needed. Having the ability to diversify your portfolio is how millionaires and born and great sums of money are made. Give it a try and see for yourself why diversification is the key to successful investing.

Tags: , , ,
Permalink

Trading Stock Market – Ups and Downs

Filed Under: Technical Analysis by Bill — Comments Off
July 15, 2009

A trading stock market or a range bound market is when the price of the market (or individual stock) is trapped between two prices or a trend of prices.  This happens when there is lots of reasons for both the bears and the bulls to be right in their assumptions.  There a couple of fairly well known clues to fiding trading ranges and trying to take advantage of them.

  • Moving Average Bound – Often the price of a stock will get trapped between a short term moving average and a long term moving average.  There is often a dynamic between the traders with a short term mentality and those fundamentalist who are following the long term path of the stock, or whole economy.  The common choice is watching between the 50 day simple moving average and the 200 day simple moving average.  However, the ideal choice will vary from stock to stock or market to market.  You’ll have to experiment.
  • Fibonacci Bound – Another set of support and resistance lines which were used as the basis for the Elliot Wave Theory are fibonacci ratios.  I’ll leave the details (and coolness) of the number sequences for it’s own writing, but the basics are you’ll look for is after a big move the ups and downs of the market start get smaller.  When the market is in this mindset look for retracements of 38%, 50% and 62% from the previous high from the previous hard low.  These waves will shrink smaller and smaller within the support lines until the next big break out.  It may be difficult to tell which way the breakout will happen but you can trade within the retracement range for awhile.
  • Range Bound (Squeeze) – This is a chart players favorite, and they’ll name all kinds of shapes into it.  Essentially what you are looking for is a consistent support line (price or trend of price) and lower and lower highs.  When you see this you know (or at least have a better chance) that the stock price is going to continue to trade in that range until there is almost no difference between the highs and the lows and either the bulls or bears win out.

A trading stock market is no place for complacency.  You’ll have to stay on top of your trades more until a strong direction is developed again.

Tags: , , , ,
Permalink