Candlestick Trading Blog
August 9, 2008
Technical Stock Trading
Technical stock trading is an investing strategy used by many stock market traders including swing traders and day traders. Technical analysis is used by these types of traders in order to predict price movements in the stock market. Technical stock trading is a method used by investors to evaluate securities through analyzing market data in order to predict market trends. Technical analysts predict future prices of stock by looking at past price movements and other trading variables. They cannot determine what will happen in the markets but rather what is likely to happen. Through this method investors use charts to identify trends and patterns and they don’t focus on the intrinsic value of a security, like with fundamental analysis. Technical analysts believe that market fluctuations are reflected in the price of stock, so by examining the price action, they can make trading decisions. The key is to detect trends in the very early stages of technical analysis. Technical stock trading utilizes stock charts that visually present the price, volume, and technical analysis indicators. There are three main types of charts including the line chart, the bar chart and the candlestick chart. Charts present this information in a time series in different intervals, depending on the type of trading. Intervals can range from seconds, minutes, daily, weekly, and monthly. Many investors who practice short-term trading use technical analysis as well as Japanese candlestick charts. Candlestick charts are much more visually appealing and helpful than bar charts and line charts. Also, bar charts cannot reflect the difference between a price extreme and a high or low. Bar charts and line charts show the basic information that candlestick charts show, but they are less informative. Fundamental analysis on the other hand is used more for long term investing and the investors studies a company’s financials in order to determine whether or not they will invest in a particular company. Long term investors don’t study charts, but instead rely on financial data reported in SEC filings, management, business concepts and competition for those companies of interest. Unlike technical stock trading, fundamental analysts look to invest in stock for years instead of days, weeks, months, or minutes. They look to forecast future stock prices just like stock technical analysis, but they look at the economy and analysis of a company to determine a stock’s current fair value and to forecast future value. Many investors debate on the use of fundamental analysis versus technical analysis to invest in stocks. Many believe that technical stock trading is too risky and they opt to use the concepts derived from fundamental analysis to invest in the long term. Others, however, believe that technical analysis, if done correctly, with a significant amount of education, practice, and training, is the more effective trading method. Some investors may use a combination of both. It is up to each and every investor to research technical analysis tools and fundamental analysis tools to determine what works best for them. It depends on the amount of time they have to dedicate to trading stocks, as well as the amount of money and dedication. Continue to research each method and determine what works best for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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