Stock Market Technical Analysis Trading

This article discusses stock market technical analysis trading. What is technical analysis? A discipline that focuses on the action of the stock market, as opposed to the earnings and dividend outlook for individual stocks. Assumption: The knowledge and future expectations of all the market participants are already reflected in the price. Key goal of technical analysis: To monitor the major trends and try to identify a major reversal or end to the trend. Reason it works: Price levels reflect not what stocks are worth, but what people think they are worth.

The strengths of technical analysis: For one thing, it allows you to make money without inside information or the input of the top research analysts. The charts of the price action of a specific stock tell all. What's more, an individual can follow a wide range of stocks, industry groups, commodities, and foreign stock markets with the aid of technical analysis. To study the fundamentals of each one of those markets, you are limited to a few of them.

By looking at the price pattern, you also get somewhat of a feel for how big a price move might be. Fundamental analysis cannot do this for you. For example: The Dow lones industrial average built a base below 1000 for 15 years. When it finally broke through, the resulting move was an extraordinarily large one, as expected.
Technical analysis can tell you at what point to buy and sell a stock. The key: Where the stock has found support or met resistance in the past.
The limitations of technical analysis: It is not a science, but an art. It doesn't lend itself to precise formulas. Indicators work most of the time, or some of the time, but certainly not all the time. See technical analysis for more information.

The most frequent mistake in technical analysis: Investors anticipate a buy or sell signal before it actually happens. They lose patience and objectivity. The way to avoid this is always to let the market do the talking.
Dow signs of a breakthrough:
• A substantial number of stocks (at least 250 to 300 of them) hit the new-high list.
• Volume runs in excess of 60 million shares a day.
• Interest rates clearly peak and head down.
The action of the stocks on the Dow lones industrial index is confirmed by strong moves in the utility and transportation averages.

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To preserve capital, professional stock traders almost always use stop-loss points to restrict losses when they assume short stock positions. How to do it: Set a loss point at which you will close out your position.

Now we will discuss how a professional investor handles his own money. While no professional investor ever wants to admit to investing in anything other than what he recommends to clients, there is one outstanding difference between investing personally and professionally: Patience. Although many investors claim they are buying for the long term, if the recommended stock doesn't move up within a few months, they want to know what's wrong and how long before it makes its move.
I use exactly the same technique for determining trends to make my own investments that I use for my clients' investments. Unlike most investors, however, I am not disappointed when a stock takes several years to show major strength.
- Principle that should govern stock investing: Determine areas where there is substantial growth capability. Invest only in the companies having a good chance to benefit from those trends.

Example: In the 19th century, British investors realized that rail roads were a key investment in the U.S. They knew little about each line and there was little in the way of balance sheet information. However, if they invested in several, at least one was bound to be an outstanding winner, and possibly every one of them held the prospect of sharing in that advance.
Don't buy cyclical stocks: I never buy a stock at the bottom of its cycle. If you buy stocks during down periods, you are a speculator, not an investor. You are speculating that you know the bottom of the business cycle for the company. Few people know that.

Avoid companies that can't grow. For example, General Motors was a good buy when it sold only two million cars a year and there was still a large market to penetrate. As it stands now, there is no growth ahead of it.
Don't try to spread risk. Once you have chosen your areas and stocks, don't bother trying to spread the risk with other stocks. It just dilutes effort.
Outside of the stock market: My primary feeling is that no liquid investments are not very beneficial to my portfolio. Reason: it doesn't matter that a Rembrandt painting I may own is worth $ 3 million if it takes a long time to find a buyer.
Real estate: I hold no property except my own home. Naturally, it has appreciated, but I bought it to live in, not for investment.

Collectibles: I have a baseball memorabilia collection that has appreciated quite a bit, but that's due to luck. I collected baseball cards and programs when I was a pre-adolescent sports fan. I also have an art collection, but I have no idea whether my selections are worth more or less than the price at which I bought them. I buy art for pleasure, not investment.

Source: Consumer Information Center

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