Technical Analysis Guide

Feb 22, 2009 copyright © David S.Y. Wong, published in ArticlesBase.com

There are many candlestick patterns in the entire spectrum of the Japanese candlesticks literature in print and on the Internet. It is an enormous task to learn to recognize the candlestick patterns and to interpret the candlestick signals to translate into trading decisions. It is a time-consuming task, or a distraction in the very least, to determine candlestick patterns and to interpret the candlestick signals in order to decide on what to trade and when.

You should research the different types of candlestick patterns and how candlestick technical analysis works in identifying trends and trend reversals. However, you should not spend time deciphering stock charts looking for candlestick patterns and determining if they constitute a valid signal. I submit that your time is better spent on other trading activities such as keeping track of company news and events, and monitoring the pulse of not only the company (and stock) but also the industry that the company is in.

You need to find software for your computer or available through web sites to provide candlestick charting along with candlestick technical analysis where the candlestick signals (patterns) are shown to you. Then you, as the stock trader (not the candlestick technical analyst), can use the software provided information to make your successful trading decisions.

Examine the historical trading performance using the candlestick technical analysis software on your stocks of choice. This will give you confidence that there is credence in the method and that the system works. Begin with paper trading a basket of stocks and monitor your trading performance as you experience and refine your use of candlestick technical analysis. When ready, proceed to real-world trading with your new-found tool. Do not forget or abandon your other trading tools and resources as candlestick technical analysis is a complement to (not a replacement of) your trading tool box and your trading wisdom.

StockTradersPlace (http://stocktradersplace.com) provides a trend following system based on candlestick technical analysis. http://stocktradersplace.blogspot.com provides a “Stock Trading with StockTradersPlace” companion guide. Empower yourself and show that you can repeatedly execute winning trades using StockTradersPlace as an element of your trading tool box.

Feb 22, 2009 copyright © David S.Y. Wong, published in ArticlesBase.com



By: David S.Y. Wong

About the Author:

How to Trade with Technical Analysis

No matter which style of investment you are engaged, you have to meet and know the basic of technical analysis. As you know, fundamental analysis and technical analysis are two main ways to forecast the price trend. Fundamental analysis involves researching and evaluating the characteristics of the object. Technical analysis, on the other hand, pays

more attention to price movements.

To understand technical analysis, you have to believe three assumes: all market fundamentals are depicted in the actual market data; history repeats itself and therefore markets move in fairly predictable, or at least quantifiable, patterns; prices move in trends.

Technical analysis is a method of predicting price movements by looking at purely market-generated data. Price data from a particular market is most commonly the type of information analyzed by a technician, though most will also keep a close watch on volume and open interest in futures contracts. Based on these information, there are many technical analysis methods which can be used as a tool to forecast the price trend, such method as chart research and technical indicators.

Chart research is the basic method of technical analysis. You can know a variety of charts patterns that show price action or specific trend. Trend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways.

Technical indicators can be expressed by the value of the indicator. The value will be up, down or same and you can get the signals which are coincident or leading the market. Technical indicators are objective, and you can be objective too.

Almost every trader uses one method or more of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied.

Genarally speaking, fundamental analysis can only judge which direction the market will move, and technical analysis can supply both direction and price. Remember, fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices. And anthoer thing you should know is that fundamental analysis is not suitable for you to day trading or short term trading.

As you are only normal individual just like me, you can not get the ongoing first-hand information and should know technical analysis first.

On the surface, it might appear that technicians ignore the fundamentals of the market while surrounding themselves with charts and data tables. However, a technical trader will tell you that all of the fundamentals are already represented in the price. They are not so much concerned that a natural disaster or an awful inflation number caused a recent spike in prices as much as how that price action fits into a pattern or trend. And much more to the point, how that pattern can be used to predict future prices.

The bottom line when utilizing any type of analytical method, technical or otherwise, is to stick to the basics, which are methodologies with a proven track record over a long period. After finding a trading system that works for you, the more esoteric fields of study can then be incorporated into your trading toolbox.

After you have begun trading, the only thing you should do is that you stay focused and disciplined on the strategy or trading method. This will be the only way for you to be successful and profitable.



By: bing zou

About the Author:

Understanding Technical Analysis

Do technical analysis methods work? Or perhaps more appropriately asked, how effective are technical analysis methods?

For those that simply believe that technical analysis does not work without having learned it, tried it and validated it, I submit they are missing an opportunity. For those that don’t have the time or energy to do it because of lifestyle constraints (e.g. they work long hours at a stressful job), it is perfectly understandable that they bypass do-it-yourself technical analysis. For this case, I would think stock trading is also out of the question because of the time and effort needed to prepare and execute winning trades. Here, it is understandable that people partake in long-term investments and listen strictly to their financial advisors/brokers. [Witness the debacle of long-term investors locked into their holdings now awaiting recovery through time.]

For stock traders wishing to leverage technical analysis, they have to find the right technical analysis system. And with so many technical analysis indicators, it can become quite confusing, perhaps even conflicting. For example, trying to apply Bollinger Bands, Moving Average Convergence/Divergence and various Moving Average crossing points, it can become very confusing to validate which ones are effective in yielding winning trades on a consistent basis. [If it works half the time, I suggest it is not effective, because the other half means you have losing positions.]

I have read comments and discussions that certain technical analysis indicators simply don’t work. I have personally performed analysis of certain technical analysis indicators and come to the same conclusion. For curiosity sake, learning about the mathematical theory behind a technical analysis indicator is an intellectually stimulating exercise, if you are so inclined. Beyond that, I think it is far more important to functionally validate the technical analysis indicators. i.e. Do they lead to consistently winning trades?

Leveraging technical analysis can be achieved in at least two ways:

1. Do-it-yourself technical analysis with charting software. You analyse the charts and make your trading decisions.

2. Subscribe to a service for buy/sell signals based on technical analysis. You treat the service as a black-box system and follow the buy/sell recommendations.

As long as the do-it-yourself technical analysis or the black-box technical analysis system (or a blend of the two) produces consistently winning trades, then you have validated the effectiveness of the approach and hence have found a winning formula. If you are making profits but wish for higher yields, then by all means, continue to seek and validate other technical analysis methods/systems. The fact that there are various software products available for the trader to devise their own trading system and back-test the method means people are ever seeking more. [Sometime the quest for more is simply an exercise in finding another way that may or may not yield more. But you don’t know until you try.]

To Conclude:

1. Evaluate technical analysis by validating against historical data. Look at the chart, make your trading decision and do the (retro) paper-trading exercise.

2. Validate against your stocks moving forward in the paper-trading exercise.

3. Answer the question: Does it consistently yield winning trades?

StockTradersPlace (http://stocktradersplace.com) provides a trend following system based on candlestick technical analysis. http://stocktradersplace.blogspot.com provides a “Stock Trading with StockTradersPlace” companion guide. Empower yourself and show that you can repeatedly execute winning trades using StockTradersPlace as an element of your trading tool box. StockTradersPlace provides viewable demo stocks for guest users and a 14-day free trial for sign-up to view all supported stocks.

Copyright © Mar 2009 StockTradersPlace.com



By: David S.Y. Wong

About the Author:

Technical Analysis Indicators

What is pattern analysis? It is basically the reading of charts. It is said oftentimes that chart reading is not as easy as the simple memorizing of patterns and recalling what they mean. This is true, because any stock chart is a combination of different patterns, and that is why accurate analysis relies on consistent study, experience and personal knowledge of elements both technical and fundamental, and, in some ways and in some measure, the ability to weigh various opposing indications, to appraise patterns in view of their minute, composite details and in the recognition of fixed, memorized formulae.

 

What are the reasons why market participants buy and sell securities in the market? Knowing those reasons will help us make better informed decisions about buying and selling securities, and knowing those reasons is a key part of technical analysis in pattern analysis. There are thousands of market participants at any point selling and buying securities for many reasons, motives and from different financial positions and information/ knowledge positions: for instance, a wide spectrum might have a love of return and a concomitant hope of gain, an aggressive optimism, hedging, with stop loss triggers, with price target triggers, using perhaps fundamental analysis, or perhaps utilising technical analysis, basing decisions on broker recommendations, and many more. Trying to figure out why participants are buying and selling can therefore be challenging. Chart patterns thus place buying and selling into perspective by combining supply and demand into a kind of concise picture. As a visual and complete record of trading and prices, chart patterns provide a framework to analyze bulls and bears in stock price movements. Hence, chart patterns and technical analysis can help us determine the true, bigger picture.

What might pattern analysis do? Pattern analysis can be utilised to make short term or long term forecasts about stock prices. Data can be intraday, daily, weekly or monthly, and patterns can be as short as one day or as long as many, many years. Furthermore, for example, gaps and outside reversals may form very quickly in one single trading session, while, broadening tops and dormant bottoms may take months to be established.

Yet it should be said that technical analysis can be science and, then again at other times, art. In addition, pattern recognition is open to interpretation, subject to personal bias. To defend against bias and confirm pattern interpretations, other aspects of technical analysis should be used to verify or refute conclusions. While price patterns may seem similar, no two patterns are alike. False breakouts and exceptions are all part of the game. Hence, careful constant study is required for successful chart analysis. In addition, it is important to know that two basic tenets of technical analysis are that prices trend and that history repeats itself. An uptrend indicates that demand is in control, and a downtrend, that supply is in control. As the balance shifts, a pattern emerges. The majority of patterns fall into two main groups: reversal and continuation. Reversal patterns indicate a change of trend. Continuation patterns indicate a pause in trend, suggesting that the previous direction will resume later. However, just because a pattern forms after a significant advance or decline does not mean necessarily that it is a reversal pattern. Much depends on previous price actions, volume and more as the pattern evolves. This is where technical analysis becomes an art.

To conclude: pattern analysis is the reading of charts, but it’s not that simple. The various motives that motivate and actuate people in the market are part of charts and patterns, and discerning the charts and patterns requires some insight into such behaviour. Yet at the same time, chart analysis and pattern recognition are not science, but art, meaning that good technical analysis is always hard to do accurately. Hence, to give some key important suggestions to budding new technical analysts, the keys to successful chart pattern analysis are dedication, a persistent dedication to learn, focus, by limiting charts, indicators and methods, and consistency, where one should maintain charts regularly and study patterns often.



By: Shawn Seah

About the Author:

Technical Analysis Trading

Do you marvel, as I do, at the ingenuity and complexity which is involved in delivering a landing vehicle from Earth onto the surface of Mars after a trip of millions of miles and of many months’ duration?  Do you now take for granted, as I do, our ability to send documents in color from one point on Earth to almost any other point on Earth -instantaneously?  The human intelligence and dedication which is required in order to accomplish these seeming miracles is almost beyond comprehension.

 

In the field of Finance, many people are turned away too soon – or give up too soon – when they hear the term “Japanese Candlestick technical analysis.”  Perhaps one reason is that it sounds “foreign,” or that “technical analysis” implies a substantial amount of hard work and expenditure of time even to begin to understand what it is all about.  This is unfortunate, because this is nothing when compared to landing a vehicle on Mars or sending documents around the world in a flash.

 

The fact of the matter is that Japanese Candlestick technical analysis is a breeze to learn, and takes very little time at all.

 

What’s it all about?  Let’s start with an understanding of the usual method of price display of a certain stock.  The price action of the trading day is shown as a vertical line, or bar, which is associated with a price scale (in dollars) at the edge of the page.  The top of the bar is the highest price of the day; the bottom of the bar is the lowest price of the day; the little wing on the left is the opening price of the day; and the little wing on the right is the closing price of the day.  Simplicity itself.

 

The difficulty is that the display is inert; lifeless.   It doesn’t readily disclose what went on during the day, or much of anything about the psychology of the buyers and sellers which drove prices during the day.  The Candlesticks cure that defect.  Rather than simply showing price action as a narrow vertical line or bar, the line is “fattened out” into a cylinder.  If the result of trading during the day is that prices closed higher than the opening price, then the cylinder is left hollow, or “white;” if prices closed lower than the opening price, then the cylinder is filled in, and is shown as “black.”  Ah!  Now we see, at a glance, that the mood of the day, overall, was Down.  The Candlestick really comes into its own when streaming data are shown on the screen, so that the viewer can see the changes in mood as the day progresses.  It’s like a movie in progress.

 

The second major advantage of Candlestick presentation lies in the interpretation of the patterns which the candles produce over various units of time.  Some of the patterns are one-day affairs; others have meaning when they develop over a course of several days or other time frames.  The operator quickly learns to recognize them on sight.  For example, if – after a long rise in prices – a daily pattern appears, well above prices to date, which involves a substantial range between the upper and lower prices of the day but only a narrow range between the opening and closing prices – and if that happens at the low end of the total range, that is called a “Shooting Star,” because that’s exactly what it looks like, and it has bearish implications.

 

Another favorite of mine is the “Evening Star,” which is a combination of the candle bars over (say) a three-day period.  It occurs at the top of a long rise in prices.  If the first candle is a long white candle, the middle candle is a little higher, but smaller, and the third bar is a long black candle which is lower than the middle candle, that’s an “Evening Star” and is very bearish.

 

This is not rocket science or putting a lander on Mars!  There are only about a dozen Candlestick patterns which need to be memorized at the outset.  It’s really fun to learn them, and to put them into practice.  The beauty of the patterns is that they are so instantly recognized by the eye, and disclose at a glance the underlying psychology of the participants in the market on that particular day.

 

They are an enormously valuable trading and investing tool.  Once you learn them, you will never go back to the “old way.”



By: William Kurtz

About the Author:

Technical Analysis Indicators

Feb 21, 2009 copyright © David S.Y. Wong, published in ArticlesBase.com

The Japanese candlestick, hereafter simply referred to as candlestick or candle, is a very effective way to convey the open, high, low, close price points for the period in question, which may be minute, hour, day, week, etc. as supported by the charting software.

The body of the candlestick is defined by the open and close prices. The tails of the candlestick (some call them wicks or shadows) indicate the high and low prices. A color or shading convention is used for the body of the candlestick to convey the up/down direction of the candlestick. An up candle has the closing price higher than the opening price. A down candle has the closing price lower than the opening price. Colors used for the body include red and blue for down candles; green and white for up candles – subject to the convention used in the charting software which may allow user customization.

Visually, candlestick charting is very effective in conveying the up and down periodic movements of the stock price. At a glance, the user is able to see whether a stock closed higher than its opening price (up candle), or vice versa, a stock closed lower than its opening price (down candle). The length of the body as well as the tails show the range of price movement for the stock. And the user is able to follow the progression of candlesticks in successive periods.

There are various candlestick patterns such as doji and hammer (just to cite two from the long list of patterns which may span 1, 2, 3 or even more periods) that are used in candlestick technical analysis where significant conclusions are attached to each pattern.

StockTradersPlace (http://stocktradersplace.com) provides a trend following system based on candlestick technical analysis. http://stocktradersplace.blogspot.com provides a “Stock Trading with StockTradersPlace” companion guide. Show yourself that you can repeatedly execute winning trades using StockTradersPlace as an element of your trading tool box.

Feb 21, 2009 copyright © David S.Y. Wong, published in ArticlesBase.com



By: David S.Y. Wong

About the Author:

Understanding Technical Analysis

It’s a competitive world! So, there is not just one free technical analysis software that is available today–there are plenty! They can be downloaded from the Internet at absolutely no cost!

It is not an easy matter for a newcomer to the trading world to decide which is the most suitable one for him/her. Additionally, each person has a different aptitude and attitude. It would therefore be advisable to search for and select the model most suited to his/her needs, rather than just deciding to go for the most popular one since everyone is using it. It would be tragic to discover later that the model does not fit in with any of the user’s needs!

A detailed description of some models of free technical analysis software is given below–

(1) A tool that can be downloaded from the web site, stock-anal.com, is the StockAnalyser.

If the user has prepared a market and portfolio list, the one-click feature allows around 40 listed stocks to be analysed. The strategies used for analysis are old-fashioned, but informative. They signal buy and sell points such as NASDAQ and DOW.

The various patterns of demand and supply can be calculated by the Bullish-Bearish indicator.

A special system monitors the candlestick chart patterns. These chart results are archived, to be displayed whenever the trader wants to view them. He/She then gets a chance to note down comparisons, and see how one is different from the other.

(2) One of the most impressive models among all is My Trader. This is a free technical analysis software that can be downloaded from the web site, Fogan,net. Its usefulness lies in the fact that it can be classified as a one-stop analysis tool that is customized to suit the user’s needs!

Those traders who are very serious about their business can utilize it to follow up on the current portfolio, as well as others if necessary. It does not matter if they have a technical bent of mind, or fundamental–the software caters to all approaches and needs.

Coming from a company that has been involved with interface designs for a longer time than others in the same field, My Trader is an extremely easy tool to operate. This software archives the entire history of transactions and tips related to the user.

Other benefits provided by this free technical analysis software include–guidance regarding markets and trading, latest trading trends, searching for stocks as per user’s personal specifications, providing an in-depth analysis of information pertaining to any particular company, and on-the-spot reviews concerning trading environments.

Unlike other online tools, My Trader does not demand special connections. Nevertheless, it provides current and dependable information concerning the trading world. Finally, as a free technical analysis software, it passes information very rapidly over the Net. A satellite connection or cable connection is unnecessary.

(3) A third model of free technical analysis software is the Modern Speculator Junior. It can be obtained from aol.com (under ddsoft).

This tool is not concerned with what happens in the future; it is only bothered about current trading prices! The reports given out are very direct and impartial.

The programs listed on this free technical analysis software are extremely easy to use, as they are very compact. The downloading and installation time for these programs is less than three minutes!



By: Abhishek Agarwal

About the Author:

Understanding Technical Analysis

Here we are going to look at technical analysis and how it can help you make big profits trading forex markets.

Here we are going to show you the logic and how you can use technical analysis to get you a trading edge to earn consistent profits.

The most common query in regard to technical analysis is:

How can it possibly help you trade when the fundamental supply and demand equation is not known?

The answer is it takes into account all the supply and demand fundamentals.

How?

Technical analysis works on the basis that the fundamentals are instantly discounted in the price ( and if you think about it this is perfectly logical in today’s world of instant communications ) and all fundamentals immediately show up in price action.

But technical analysis does something more:

The price of anything ( including currencies ) is not just a reflection of the supply and demand fundamentals, it is a reflection of how people view them.

Human psychology ultimately determines the price of anything.

So, the equation for the determination of price is:

Supply and demand + human psychology = Price

Recurring price patterns

Human nature is constant and this is reflected in recurring price patterns in the market that can be traded for profit.

By studying charts and a whole host of technical indicators traders can determine the odds of where prices will go next.

In essence technical analysis in directly studies the fundamentals and human psychology.

Most short term price spikes are caused by emotion – Not the supply and demand fundamentals and these are easy to spot using technical analysis.

Technical analysis is an art not a science.

You need to practice your art, however if used correctly, it can help you put the odds in your favor and help you spot trading opportunities.

Currency markets are ideal for technical analysis as they exhibit long term trends either up or down in price.

By locking into these trends you can trade them for profit and as the major trends can last for months these profits can be huge.

In part 2 of this article we will go through how to use technical analysis correctly to profit from these long term trends.



By: Sacha Tarkovsky

About the Author:

Technical Analysis Trading

If you look at any chart of currencies you will see that they move in trends. These are of course easy to spot in hindsight.

Timing your entry levels and following these trends is of course harder and the aim of all currency traders, however 95% fail and lose their money.

If you are using or want to use technical analysis you must know the basics of trend following and here are some tips to help you make profits.

Let’s look at 3 types of trend and then look at some tips for trading them:

1. Long term Trends

As currencies reflect the underlying health of the economy and the economic cycle there are currency trends that last months or even years and this is the primary trend.

2. Intermediate Trends

These last from anywhere between a few weeks and months and are reactions within the larger primary trend.

3. Short term Trends

These last for a few days to around a couple of weeks.

All the above can be traded for profit and the trends you want to trend are down to personal trading style and taste.

Trends not to trade

Many of you will have wondered why we ignored daily and intra day trends.

The answer is they simply cannot be traded.

While you can see them in hindsight, the data in a day is unreliable, as all daily and intra day volatility is random.

If the data cannot be used to get the odds in your favor you will lose when trend following, with any form of technical analysis.

Trend following in very short periods is a mugs game and that’s why you never see a day trader with a track record of profits.

So how do you catch the trends and enter with the best risk reward?

Well this is the challenge for all FOREX traders and as we have said it is more difficult than most people think – that’s why 95% of traders lose.

Here we will give you some tips when currency trading for catching currency trends and turning them into profits:

1. Understand the concept of support and resistance and trade breakouts.

It’s a fact that most major market moves start from new market highs NOT market lows, so if you use breakouts you will catch the really big moves.

2. When Buying Support or Selling resistance DON’T Predict

This is a major error made by novice traders. Then buy into support and “hope” it will hold.

When you are trend following this is a good way to lose. You are predicting where as you should be acting on confirmation.

Always wait for a test of support and use a momentum indicator to indicate a change in direction in your favor BEFORE entering the trade.

This will confirm support or resistance has held and the momentum has reversed you then have the odds in your favor

3. The differences between Long and short term trend Following

The concepts are generally the same, but there is one difference in my view between following long and intermediate trends and short term ones.

With long term and intermediate trends you can trail stops in short term trading you must use a target.

Because the profits are smaller and moves shorter in the latter, they can disappear quickly, so you should “hit and run” and bank profits on the hitting of your set target.

When doing the above we always set the target lower than the consensus.

If prices are generally targeting a level and the market is looking for it we would bank early.

4. Patience

Trend following involves being patient and staying on the sidelines until you see an opportunity that fits your methodology.

Don’t be in a hurry to trade – Only trade when the odds are in your favour.

Catching trends and making profits from them is hard, but with the right approach and only trading when the odds are in your favour you can pile up some big gains

Good Luck



By: Sacha Tarkovsky

About the Author:

Understanding Technical Analysis

I have heard people lament how difficult it was to perform technical analysis and how they can never learn the skills. There were also many critics or fundamental believers that the stock market can never be timed and that we market technicians are wasting our time trying to beat the market using technical analysis. Technical analysis was thought to be a study of past price behaviors and critics were saying the past doesn’t reflect what will happen in the future. They are both right and wrong. They are right because technical analysis is not a crystal ball where it is 100% accurate. They are wrong because technical analysis reflects the human emotions happening on the charts. Do human change over the centuries? As far as emotions are concerned, fear and greed are human nature that will never change! Humans will still do insider trading even if it is illegal due to greed. We saw how corporate governance though tightened over the decades was not fool proof to these criminals. Humans will still fear losing paper profits and they will still fear declining stock prices leading to declining capital. All these emotions can be found on the charts as they happen. Ask yourself, how many times have you seen a stock price run up before news is released? Anticipation of shareholders? Well, maybe but how about insider leaking the news? Think about it.

Every night I study in details charts and it is through all these relentless efforts that I became very familiar with technical analysis. If a lawyer wants to win a case, he will study the case carefully and also refer to past cases. We all know lawyers earn big money, but it is really this hard work of preparation that justifies their huge pay. As a trader, we cannot slack too. Hard work and efforts must be put in to learn technical analysis. Long hours of studying these charts will enable us to be very proficient in chart reading and recognize buy or sell signal in a flash as the experience build up. There is no shortcut to success in trading as far as I’m concerned.

I started trading as a loser and often times am only interested to know which the next stock to buy is. This is not why legends made their fortune in the stock market. Every single book that I read, advocate us to study past charts and get familiar with all the chart patterns or price/volume relationship. Hence why shouldn’t we follow? After all, they are the ones who have done it and been there.

Remember, human nature never changed and this is the fundamental reason why technical analysis will work.

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Yours truly,

Decipher

Author of http://growmoney.blogspot.com

http://growmoney.blospot.com where my trading journey never ends



By: Decipher

About the Author:

Technical Analysis Trading