| 1888 Articles Home | Finance Articles | Stocks Mutual Funds Articles | Educational Articles | Stocks Mutual Funds RSS |  |
||
Investors read this before jumping in again! |
||||
|
In this article the author explains the importance of using technical analysis before making important investing or trading decisions. The author gives 5 key technical indicators that one should use and understand before buying a stock. |
||||||||||||
| Author: Shoshana Antelman |
|
|||||||||||
Technical analysts try to spot a trend, and ride that trend until the trend has confirmed a reversal. If a good company's stock is in a downtrend according to its chart, a trader or investor using Technical Analysis will not buy the stock until its trend has reversed and it has been confirmed according to other important technical indicators. Remember these are turbulent times, the financial markets are in crisis, the US economy might be heading into a recession.
Over the past several months many analysts, advisers, and savvy investors have recommended buying stocks. They argued that stocks were dirt cheap, extremely undervalued, and that current price levels were unjustified. "Lets go bargain hunting" as many put it. Unfortunately what happened was many investors and traders took their advice and went out and bought stock at their so called " bargain prices", and ended up paying dearly for them. Either their entire initial investment was wiped out, or sometimes a large chunk of it disappeared overnight. What went wrong? It wasn't that the fundamentals weren't there, surely if many of these analysts were recommending these stocks and analyzed them carefully, they were true gems. The problem was when they recommended people to buy these gems, for some reason they did not stop for a moment and consider the possibility that the stock could continue to drop in price,or even crash, resulting in severe losses. What were these fundamental analysts missing? Basic knowledge of Technical Analysis . Traders that base their stock picks or investment decisions on careful technical analysis have been able to take advantage of the stock markets' recent swings. When a stock is in a downtrend, join the trend and short sell the stock. When a stock is in an uptrend, buy it and ride the wave all the way up with it. It sounds simple doesn't it? Well, actually if people took the time to learn about basic technical analysis, they would be better investors and make smarter trading decisions.
If one is putting their hard earned money at risk, isn't it worth it to invest a little time aside from money in understanding a basic chart of their stock they wish to purchase? Technical Analysis gives one more insight of how the stock behaved in the past and where it looks like it might be heading in the future. When a stock is in a downtrend, isn't it better first for it to bottom, then start an uptrend, and then buy the stock,instead of buying it when its still in a downtrend? If a pair of scissors fall off the table will you try to catch them in midair where you might end up cutting yourself and bleeding, or will you wait for them to first fall to the floor and then pick them up to prevent yourself from a serious injury? If the latter makes more sense to you then you should apply some basic Technical Analysis the next time before investing or trading a stock.
One does not have to learn the whole field of Technical Analysis to start using it. There are too many tools and theories out there that it can appear overwhelming and time consuming. However In this article I am going to mention the 5 most basic and I feel important technical indicators or tools used, that you should pay careful attention to when researching a stock. A good investment or trading decision using Technical Analysis is based on a stock's chart. So pick a chart and begin analysing it.
1.General uptrend or general downtrend-Before investing or trading this is the most important indicator. "The trend is your friend". It is easier to make money when a stock is going up, higher highs and higher lows, called an uptrend, then when it is going down, lower highs and lower lows, a downtrend. In an uptrend each new peak that is formed is higher than the prior ones. The trend will be broken if the next low is lower than the previous low the stock fails to form a new peak higher than its previous ones. Stocks that have charts that go up and down with no direction, and no clear uptrend or downtrend are difficult to predict which direction they are heading. A stock in a steady general uptrend or general downtrend are much easier to trade.
2. MACD Crossover. After you have researched a stocks chart to see if the stock is trending, you should now check out its MACD graph. MACD-stands for Moving Average Convergence-Divergence. This graph has 2 lines , the crossing of the two lines is a signal of a new trend. The two lines consist of a fast line and a slow line. Where the crossover happens tells you if there is a trend. The fast line has to cross above the slow line, or above the 0 line. The higher it ascends above the 0 line the stronger the uptrend. The lower it descends below the 0 line the stronger the downtrend. A trader or investor wants to catch stocks that are trending big time, that is how it is possible to make good money!
3. Close above or close below the EMA'S. When analysing a stock's chart , moving averages are vital. It is one of the easiest tools used in TA. EMA-stands for Exponential Moving Average.When a stock closes above its 13 and 50 day EMAs this is a bullish signal. If a stock closes below it's 50 day and 13 day EMAs there is a good chance that it might fall to its 200 day EMA creating a bearish signal. Some stocks when they take a breather, bounce off their 5o day EMA, which creates an excellent buying opportunity before they make new highs. Stocks that have recently closed above their 50 day EMA might be reversing their trend , and might go higher.
4. Stochastic-oversold or overbought. This indicator shows you the short term movements of a stock. Essentially you want to buy when a stock is oversold and exit when its overbought. If you are considering selling short a particular stock an overbought condition might make a nice entry point. When observing a stochastic graph look out for what looks like a hook being formed, this can indicate an excellent entry point where the stock has bottomed already and it is rising from oversold conditions. Some of the best trades are when you can catch a stock that is in an uptrend, above its 50 day EMA and oversold according to a stochastic graph.
5. Support & Resistance. Support-this term describes the bottom of a stock's trading range. It's like a floor that a stock price finds it hard to penetrate through. Resistance-this term describes the top of a stock's trading range.It's like a ceiling which a stock's price doesn't seem to rise above. Support and resistance levels are essential clues as to when to buy or sell a stock. Many successful traders buy a stock at support levels and sell short stock at resistance. If a stock manages to break through resistance it could go much higher, and if a stock breaks its support it could signal a breakdown of the stock, and it might go down much further.
About Author
Shoshana Antelman is an experienced trader, instructor, and author. She is head of Global Pecunia LLC trading team Shoshana recommends daily stock picks, and best and worst performing ADRs and foreign stocks to trade.
Article Source:
http://www.1888articles.com/author-shoshana-antelman-17555.html
Other Related Articles Party Hard! Attract buyers by throwing a unique party style open house by Karen Schaefer Updating your Booklet Design by Kaye Z. Marks Investors read this before jumping in again! by Shoshana Antelman Adjustable Beds and Tempurpedic Have Many Benefits for the Patients by Meo Kittaneh Auto Loans for No Credit People – Get a Car Financed without Credit Verification by Herry Marker Small Business Loans: Financial Solution For A Small Business by George Linken |
