Technical Analysis.
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But I figure, the information about that stock has guided those traders for one reason or another to hit the “buy” or "sell" button. And the information I've discerned has guided me. A bunch of are going to be right. The other bunch aren't. Not bad odds.
Technical analysis makes these assumptions:
• Everything you ever want to know about a company is reflected in the stock price. If a stock is trading at $1.75 a share, most people think it's junk.
• Prices move in trends. Up, down or sideways. If a stock is in a confirmed uptrend, it will most likely continue. Want proof? Ever see a stock chart that looks like a scattergram? I haven’t.
I know that uptrend won't last forever. But when it ends, you have a new trend. It's called "down."
• History repeats. Investors buy and sell for the same reasons they did a hundred years ago. Fear of losing money and the hope to make money. Our plans for the future are plotted on stock charts. The formations repeat and are almost predictable.
The first rule in technical analysis is to find yourself a trend. An upward trend is simply characterized by a stretch of rising prices. To confirm this, we need to see higher highs and higher lows and the price ascends. If you’re into shorting, a downward trend is the exact opposite.
Swing trading is a technical trading style. An upward trend will contain short term price fluctuations. The swing trader will try to capitalize off these up & downs within the long term trend.
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As long as the stock is ascending as descibed above, we sell as the price makes a momentary high, and buy when the stock rises from it's dip.
The object is to spend as little time as possible in a swing trade. The longer you are in it, the more risk you're expose to. Keep those stop losses in place.
Whole Foods. A bit on the volatile side, but had several swing trade opportunities.
Large cap stocks make the best swing trade picks. You want actively traded stocks because prices osculate more within their range. Different traders use different rules to how they buy and sell during this wave. Some use a percentage difference from the previous price bars. Some use whether a moving average line has been touched.
The longer the trendline, the more significant the strength. The steeper the angle, the less significant the trend will be.
Technical indicators give statistical insight into recent stock price behavior. The indicators can be as simple or complex as you want. I personally like to keep it simple. I use only a few technical analysis indicators and we’ll review the more important ones in another section.
A buy signal from an indicator can initiate a price increase. If many traders caught the signal, it can set off a series of buy orders. If you caught the signal, you can take advantage of the price movement.
Support and Resistance
One of the most profitable signals on a stock chart is the breakout. When a price trades in a tight range it is said the battle between bulls and bears is about equal. Battle might be too exciting of a word. Traders consider sideways moving stocks as something to avoid.
As the prices drops to a certain level a wave of buyers comes in and picks up shares. People on the “sell” team are holding on to what they have. The price seems to find support and will not go lower. That low price will be considered by many as an attractive buy point. This action forces the price to rise.
The new higher price will have a percentage of holders looking to take profit. The price finds a resistance level and not go higher. What can you do with this trading range?
If the spread between support and resistance is wide enough you can be brave and trade it. Or you can be safe and not sorry, and do nothing.
For an online service that puts clear buy & sell signals right in your face -
Technical analysis offers numerous chart patterns to look for. This includes such fancy names as: flags and pendants, head and shoulders, triangle, wedge, triple top and double bottom.
There are countless technical indicators whose formula can be tweaked to your personal liking or to match the current state of the market. I like to trade trending stocks and subscribe to the Jesse Livermore Schhol of Thought. The money is made on the sitting.
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