Stock Market
Technical Analysis

Experience traders often make use of Stock Market Technical Analysis to make money from the market. Before you can decide which Options Strategies to apply on the stocks you are monitoring, you must have a general idea on where the stock might be headed.

Is it moving up, down, range bound or waiting to explode?

Analyze the stock chart of the stock will enable a technical analyst to notice pattern on the charts and determine when a Trend is beginning or ending.

There are basically two main types of Stock Market Technical Analysis

  • The traditional method of recognizing stock chart patterns
  • The modern method of using computerized indicators

Traditional Method of Technical Analysis

The traditional method of analysis is base on the study of chart and identifying price pattern to look for uptrend, downtrend, support and resistance. The more famous price patterns are Head and Shoulders, Double Top and Bottom, Rectangle, Triangle and Cup etc. It is a relatively easy concept to understand but applying it is very subjective with individual traders.

Therefore, besides identifying the price pattern, trader began to seek confirmation from other unrelated indicators to recognize a legitimate technical signal. In these early days, traders often use volume as the confirmation indicators.

Modern Method of Technical Analysis

With the aid of computer technology, traders have developed various complex mathematical tools to provide a more objective view of the market. Since then, many traders start to analyze the stock market by only using these complicated indicators as the primary source of signals to enter or exit the market.

The resultant technical indicators can be further classify into different groups such as Trend-Following Indicators, Oscillators and other Miscellaneous Indicators.

It is important to select several indicators from the three groups and incorporate them into your trading system. Set up their parameter and stick with them.

The exact mix of technical indicators changes with various market. There are many market indicators developed. However, we will only focus on the most common and popular indicators on various group. Most traders will use the following combination of input in their trading system.

Trend-Following Indicators help identify the current market trend:

  • Simple Moving Averages,
  • Exponential Moving Averages,
  • Channels lines.

Oscillators Indicators help identify reversal:

  • MACD-Histogram (Moving Average Convergence-Divergence),
  • Stochastic,
  • Relative Strength Index (RSI).

There are no magic formulas to identify trends or point of reversal. Technical indicators are developed to help in identifying them. When the indicators confirm with each other, the message is reinforced. However when they start to contradict each other, it is better for you to pass up the trade.

With the help of falling commission from brokers and increased speed in communication, Stock Market Technical Analysis become very useful to those traders who are willing to spend time studying it.

It is widely used by professional traders, investors and individual who manage their own money.

However, the subject of Technical Analysis is complex. It is impossible for a trader to have knowledge of all possibility of the market that he is trading.

Therefore you must decide on the method, market that are most suited for your personality, knowledge, time available and the size of your trading account. Continue to learn and personally trade to gain experience in the different markets you are monitoring in order to enhance your knowledge and generating consistence profit from it.

We definitely hope that you will find the information provided useful and use it as a stepping stone to your study and exploration in the arena of Stock Market Technical Analysis.

Next, explore how various Options Strategies may help you to limit your risk and maximize profit on your trades.

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