How do you scrutinize the stock you are considering buying as an investment? More and more traders today find it much more excellent to perform their analysis technically rather than fundamentally. I believe a trader using technical approach in studying stocks awaits more and quicker profits as rewards.
Technical analysis is the study of equities chart and also forecasting probable price moves based on the patterns that are exhibited on the chart. For a market technician to be successful, it is best to keep things simple. If you are starting up with your technical analysis, you should overcome the massive amount of information and not fall prey to the “holy grail syndrome”. Many have forgotten that the most important considerations in the stock chart are the volume and price. These indicators are useful to many and they are using them as timing systems but they are almost excluding the price chart itself. Remember that they were meant to be used as tools to help validate the predictions on the chart and not to enter a trade. The price chart itself is where the most probable trades come from. It tells a psychological story. The trades should be based on the confirmed break of the pattern.
The ability to predict the value of a stock accurately is both an art and a science. Technical analysis is the science of analysing the past and current data of a stock to predict its trend in the future. And because the outcome of an accurate prediction has far-reaching implications, it has become an important tool in stock trading.
Stocks usually follow a trend line. This trend line seems to obey the law of inertia. To make it simpler, once that a particular stock moves along a trend line, it is more likely to have a tendency to continue the movement along the same trend. And when the investors are able to spot this trend, it becomes a lot easier for them to predict the future movement of a stock. This then gives them an edge over the other traders and investors who are still guessing the way the stock would turn next.
According to technical analysis, when a stocks’ successive high points and low points are on the higher side, then it indicates an uptrend. On the other hand, when the stocks’ successive high and low points are on the lower side, then it indicates a downtrend.
The satisfaction offered by mastering technical analysis cannot be overstated. It is very satisfying to find stocks screaming “buy me” and watch as the price breaks out of the range. Learning how to read charts takes time but not forever. The key here is to spend enough time to study stock charts. Over time, you will be amazed on how quickly you are able to recognize technical patterns that will tell you whether a stock has topped out, bottomed or continue its trend.
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