Understanding Technical Stock Market Analysis
19 June 2010
An understanding of technical stock market analysis can be a valuable tool in determining the trend of any market and assisting with entry and exit levels for your trades. Using technical analysis to determine when a market is trending (and just as importantly, when it is not) is a good way of putting the odds in your favor when you enter the market.
As a general rule, strongly trending markets have small reactions of between 1 and 4 bars on any chart you may be looking at, so we are always trying to enter trends that meet this criteria. These bars can be for time periods of a little as one minute for day-traders, up to weekly or even monthly charts for long-term investors.
All it takes is a couple of trends like this a day for day-traders, or a couple of strong trends each year for long-term investors, to make a lot of money trading. Unfortunately, many people fight the trend and buy or sell at every small change in direction, thinking they have picked the top or bottom of the market, only to see the trend continue on it’s merry way immediately.
By the time the trend is finished, these traders have spent their psychological and monetary capital in a futile attempt to pick the top or bottom.
Another common mistake traders often make is increasing their position size when they are wrong, or averaging a loss (sometimes called dollar cost averaging). This can (sometimes) work for long-term investors (but only sometimes), but it can be a very dangerous strategy for traders. It is often advocated by well meaning friends and others when they hear of a loss you are facing – they justify it by saying things like “You don’t lose money until you sell”.
Of course we know that this isn’t true – a loss is a loss no matter when you take it. Better to take it sooner rather that later or you won’t have a trading account left to trade with. This kind of strategy can prove disastrous to a trader, you don’t want to go there.
Remember – The trend is your friend, so don’t ever buck it.The correct use of technical stock market analysis also gives us a mechanical indicator to use for entries and exits, and takes a lot of the guess work out of our trading. It is very hard to argue with the trend being down if you are looking at a series of lower tops and bottoms on your chart.
Will every trade be a winner if your technical analysis skills are good?
Of course not. Losses on some trades are inevitable, as we cannot know for sure what the market will do. If you are a day-trader, it only takes one large trader dumping a bunch of orders into the market to invalidate your perfect trade set-up and send the price of anything in the opposite direction to what you were certain was going to happen.
If you are a longer-term investor, it can take more than one big trade to change the trend, but still you are going to have losses when you get it wrong. All our analysis can do is alert us to probabilities – there are no certainties in financial markets. This is the hardest thing for most traders to accept. We all hate to be ‘wrong’, but that is the nature of the trading business.
All we can do is take every trade our analysis gives us and see what happens. The better our stock market analysis and our trading system, the more likely our trades will produce profits over the long term. So remember, the large profits come from identifying a strongly trending market in whatever time-frame you are trading, and taking multiple positions (limited of course by your trading account size and tolerance for risk) with that trend. You need a system to identify these strongly trending markets and alert you to the potential of a trade.
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Tags: charting, stock market, stock trading, Technical analysis, technical stock market analysisCategory : Investment
A mistake leaning investors make, is they're perfectionists at TA.
The charts represent mass psychology between buyers and sellers, supply and demand of what people think a stock is worth. When you see it from that perspective, it's easier to have an appreciation for charts. People aren't always predictable and neither are charts.
Try and estimate with you're horizontal lines. You could put one at $18 as a major support. This seems reasonable on the daily/weekly charts since HD hit $18 three times. You could use $21 as a short-term support or even 20.80. There's no perfect right or wrong answer. You need to estimate to master support/resistance.
If you think HD is on an uptrend, use other Information as clues. The fact that HD raised it's dividend in 2008 and made a profit in a difficult year is good evidence.
With support and resistance lines, the more a stock hits a certain price, the more significant the support/resistance.
The best out there: "24 Essential Lessons for Investment Success" by William Oneil. He is the founder of the publication "Investor Business Daily"
I look for the put call ratio to be very low and begin to rise. I also look for the new individual stock highs to peak and drop off while the market is still rising. A spike in volatility while the market is at new highs is the signal to get out now or go short.
I don't believe that any of the $700 billion has been distributed yet. And, it's thought that it will be a significant amount of time until the money works its way into the economy. The banks are going to start doing what they should have been all along – analyzing the repayment potential before they make their loans. They are under a magnifying glass right now and they are going to err on the side of caution. But, without that money, the banks couldn't even make the loans even if they had wanted to. Meaning that the thousands of businesses out there that rely on credit to deal with day to day operations would suddenly not be able to. If that happens, they stop paying creditors, then they stop paying employees and the problem becomes worse and worse until we would be in a true depression. It isn't that the banks don't trust each other. On the contrary, they are the only ones they do trust right now.
hi
i use it for delivery trade
Fix ur indicator & parameter & just follow them
more on my blog
Things that jump out to me:
Under your qualifications, your tense changes a few times, I see filing, answer and dispatched – it would read better if it were consistent (and to be honest seems to contradict the point about attention to detail).
Also, under qualifications I think there are a few points that are repeated in your last point. I would take out the repetitive items:
General office knowledge including but not limited to: keyboarding, 10-key, data entry, multi-line phone skills, and the ability to operate and troubleshoot most types of office equipment including fax and photocopier.
Also – did your job at the realtors end in August 2004, or is that where you are currently employed? If the latter is the case, I would put August 2004 – present.
In terms of your listing of dates for previous employment, I am confused by the following: January 1998 / August 2004
Does this mean that you worked there for the month of Jan 98 and Aug 04 but not in between?
You list one job as having worked there from February 1996 – February 2002, so again I think consistency is needed if the above job was from Jan 98 to Aug 04. And personally I think the dash looks far better than the slash to separate your start and end dates.
Good luck in your job search!
Technicals work fantastic…if you have a trading plan.
Know your support and resistance, and don't take big losses and use trendlines to understand when to take profits.
Technicals work great if you use larger time frames for longer term trades and shorter term charts for shorter term trades.
I trade for a living and I'm only successful on about 60 percent of my trades. The key is understanding when to get out of the position.
Good luck!
Matt