Technical analysis of the stock market, or any other market such
as Forex, Bonds, Futures, is how most traders and investors make their
trading decisions. This is as opposed to fundamental analysis which most
people more agree is pretty much done as a way of making trading
decisions, unless of course you are Warren Buffet!.
You only have to think back to major stock market scams like Enron to know that it is almost impossible for the average, and even very sophisticated fund manager or hedge fund trader to really know what the real financial state of a company is.
Just by reading the balance sheet and other quarterly reports they release gives you a very limited insight into the real health of the company. Whereas the technical charts of the company tend to give the real picture of what the market thinks of the value of the company. In the case of Enron even simple technical analysis told you to SELL when the stock was in the $80-90 range, this is why technical analysis of stocks is so popular.
So what is the secret to technical analysis?, I'm about to tell you, here are my golden rules:
* Only use 3-5 simple technical analysis indicators
* Make sure that you understand how the indicators that you have selected work, what the parameter settings are and in what market conditions they are effective
* After selecting your indicators and parameter settings don't mess with them.
The real secret to technical analysis is to get VERY familiar with your chosen indicators, and really this can only be done by watching and studying the market, so that you get to the point that you TRUST them.
The fact is that in any market, for each bar, there are only 5 pieces of information, the open, close, high, low and volume, yet there are now hundreds of indicators. Most of these indicators are displaying the same information and so are redundant.
For the record my set of indicators are:
* 4 Simple Moving Averages
* Bollinger Bands
* MACD
* Stochastics
But the way I use them is quite special and different from how they are normally used, this is also how I have an edge in the market.
You only have to think back to major stock market scams like Enron to know that it is almost impossible for the average, and even very sophisticated fund manager or hedge fund trader to really know what the real financial state of a company is.
Just by reading the balance sheet and other quarterly reports they release gives you a very limited insight into the real health of the company. Whereas the technical charts of the company tend to give the real picture of what the market thinks of the value of the company. In the case of Enron even simple technical analysis told you to SELL when the stock was in the $80-90 range, this is why technical analysis of stocks is so popular.
So what is the secret to technical analysis?, I'm about to tell you, here are my golden rules:
* Only use 3-5 simple technical analysis indicators
* Make sure that you understand how the indicators that you have selected work, what the parameter settings are and in what market conditions they are effective
* After selecting your indicators and parameter settings don't mess with them.
The real secret to technical analysis is to get VERY familiar with your chosen indicators, and really this can only be done by watching and studying the market, so that you get to the point that you TRUST them.
The fact is that in any market, for each bar, there are only 5 pieces of information, the open, close, high, low and volume, yet there are now hundreds of indicators. Most of these indicators are displaying the same information and so are redundant.
For the record my set of indicators are:
* 4 Simple Moving Averages
* Bollinger Bands
* MACD
* Stochastics
But the way I use them is quite special and different from how they are normally used, this is also how I have an edge in the market.
Hans Jacituz is a chartered professional engineer, full time
trader and internet business owner. Read more educational articles and
videos about day trader training and swing trading articles at his website.
Article Source:
http://EzineArticles.com/?expert=Hans_Jacituz
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