Ever did graphs during your Secondary School? Remember the bar charts and gradient indicators that you have to figure out so detestably during your school days? And you wonder how will they be applicable to you in the future? Well you guessed it! This is what people use to 'forecast' the future price movement of the stock, note the word forecast. This method of picking stocks is called Technical Analysis.
Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume. Well although not theoretically direct from what you learned during your school's maths lesson. Technical Analysis is really all about reading graphs, bar charts and understanding the principle usage behind the tools. There are different indicators and each of them has their own formulas. Some of the famous tools being used are Eg. Moving Average, Stochastics, MACD, Bollinger Bands and Candlesticks. These are largely used in a chart of a share to determine the future price movement of the stocks. Heres an Example of a chart where most of you will find in your online Trading platform.
fig.1 Have you Grasped the Trend?
Look Confusing? To sum it up. Technical Analysis if you had read more, is largely about signals and sentiments. Its about following the trends (they are you friends). Technical Analysis have been a popular approach used frequently by day traders who buy and sell their shares daily without indulging in the fundamentals of the shares/company itself. They rely solely on data, charts, and graphs to whizz in and out of the market.
Understand that in the beginning i noted the word 'forecast' being used in Technical Analysis. Forecasting/Predicting be it on the weather or stock movements can never and will never be 100% accurate. There are absolute indicators that lets you foresee better on whats going to happen next. Remember that all businesses are hugely affected by the supplies and demands of their products and services and not entirely who buys and sells pieces of their shares. However, not to say that Technical Analysis is a completely bogus way of investing. There are still many whom profited from its usage and some even made millions out of it. Please note that these people are professionals and they went through lots and lots of losses and courses before being successful, having found their own strategy to beat the market.
The following are some valuable guidelines used by the Great Technical Analyst Paul Tudor James II himself:'
- Attempt to buy and sell turning points.
- Trade at the smallest amount when your trading is at its worst.
- When develops an idea pursues it from a very-low-risk standpoint until proven wrong repeatedly, or until you change your viewpoint
- Swing trading; the best money is made at the market turns.
- Gets out if a losing position is making you uncomfortable. Nothing’s better than a fresh start. Key is to play great defense, not great offense.
- Never average losers. Decrease your trading size when you are doing poorly, increase when he is trading well.
- Develop mental stops. If it hits that number, be out no matter what. Not only price stops, but time stops.
- Monitors the whole portfolio equity (risk) in realtime.
- Prices move first and fundamentals come second.
- Don’t care what mistakes made 3 seconds ago, but what you are going to do from the next moment on.
- Don't be a hero. Don't have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead
I CANT SAY MORE! - SYI
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