Stock Analysis (Patterns)

Cup & Handle
The cup and handle is a charting analysis where traders look for of course “cups and handles”. This is where prices begin high then dip then rise again. This pattern will resemble a cup. It will then steady out for a period of time (this will resemble a handle) before breaking out again and finally shooting to a new high. The goal of the investor is to buy “at the handle” and this would be the most profitable time to enter.

Head & Shoulders
This is another pattern that looks like a head and shoulder. It is formed by a peak and dip followed by a higher peak and then another dip and rise. The first and last peaks are the shoulders and the middle highest peak is the head. This indicates a downward trend and the big drop will come soon after the second shoulder.

Stock Analysis (Indicators)

Bollinger Bands
These are sets of 3 lines. The two outer lines show market volatility. As the distance between the outer lines increase it indicates a more volatile market. As the distance between the lines decrease it indicates a less volatile market. The middle line is the moving average of the two outer lines. The distance of the middle line to either the upper or lower line indicates whether the stock is oversold or overbought. If it’s closer to the lower line it signals an oversold stock. As it closes to the upper line it signals that it is oversold and the price should rise soon. Bollinger bands are usually used along with other indicators to support a suspected trend or change.

Relative Strength Index (RSI)
The RSI takes the ratio of days the stock has finished up against the number of days it has finished down. The time period is around nine to fifteen days. An RSI below 30 indicates an oversold stock, meaning that its price is due for a rise and now is a good time for traders to go in. An RSI above 70 on the other hand indicates an overbought stock meaning that it is due for a price fall and traders should sell off. This shouldn’t be exhaustive in your research indicators. In a bullish market many stocks will seem overbought but may still be due for a rise. A more accurate way of analysing the stock is to see historical charts of how the stock prices moved with the RSI.

Money Flow Index (MFI)
The MFI looks at the volume of shares and price. It is similar to the RSI in that it gives a score of 1 to 100, and an MFI of 70 and above is a sell signal and 30 and below is a buy signal. Long term charting of MFI is more accurate then short term

The key to being accurate in your analysis is to use a mix of these technical analysis indicators and patterns together. This along side fundamentally analysis is a sure bet to picking the right times to enter or leave securities.

Arkaitz Arteaga MarketStock.net

The best method to foresee stock trends is through technical analysis. It is common practice in the stock market and allows investors and traders to predict stock fluctuations by studying charts and various indicators. Technical analysis is completely independent of any type of research on the company’s intrinsic value or the field and type of business they are in. Technical analysis only looks at past price and volume movements of the company’s stock.

Investors who use technical analysis are usually short-term traders who only hold their position for short amounts of time until their desired price target is reached. It is not recommended to use technical analysis for long positions because it does not account for the work the business does. This typically means it doesn’t look at factors like company’s growth projections or future goals.

The whole foundation of technical analysis is supported under the idea that share prices move in patterns determined by how the market sells and buys stock as a whole. It takes the entire market as a collective person that has a resounding trading pattern. This is primarily based on market psychology and past market behavior. This also accounts for historical events like natural disasters or economic crises and how the company’s stock movements have reacted accordingly to each of these events. This study of the market is vital for any successful technical trader. The key to good trading for technical analysts is to know the best times to enter the market and how long to hold their position so to make a profit.

When a trader understands these patterns they can generally predict how share prices will turn and use this knowledge to their favor. This will tell them what items to add or remove from their portfolio. Generally if traders are wrong about their predictions they should keep fail-safes and have a viable exit strategy. This is primarily what stop losses are. Traders will have a minimum price of where a stock can reach before they exit to cut their losses.

There are many indicators when it comes to studying charts. The main and most common indicators are based on ‘Support’ and ‘Resistance’. Most stock prices fluctuate up and down, so when a stock is moving down is does not technically indicate that it is on a down trend and vice-versa if it is moving up. Stocks generally move in wave patterns and remain between their support and resistance. If a stock breaks either then it is said to have a new support/resistance and this price can be predicted. These are times when a lot of traders will have to choose to hold their positions or leave.

Charts

Technical analysis is strongly dependent on studying charts to track stock movements. Bar Charts are commonly used for beginner traders. A bar chart will generally consist of bars which show the opening and closing price and whether the price has fallen or risen.

Another, more useful chart is the candlestick chart. This is a Japanese form of technical analysis that has growing popularity in the west. It is said to be more accurate in predicting price movements compared to bar charts. Each candlestick shows the stocks opening and closing prices in the ‘candle’ and also shows the highs and lows of the day in the ‘flint’. Red or black candles indicate that the stock closed lower then it opened and white or green ‘candles’ indicate the opposite. Each of these candlesticks is an indicator of future movements. A small red bodied candle with small flints is a sign of a downward trend. A green bodied stock with short flint however indicates an upward movement is coming. There are many other candlestick indicators like shooting-stars and hang-mans that predict different movements.

Arkaitz Arteaga MarketStock.net