Investors generally evaluate their stocks based on basics like industry trends, valuation and revenue. But market price does not get reflect in the basic factors. Technical analysis examines historical data, especially volume and price for price movement prediction. Investors and traders get guidance to navigate the gape that otherwise exists between market price and intrinsic value. It is achieved by leveraging techniques such as behavioural economics and statistical analysis.
Availing the right approach
Technical analysis training is necessary to know in details the two different approaches. It includes bottom-up and top-down approach. The latter is preferred mostly by short-term traders while bottom-up approach is a favourite among long-term investors. Besides this, to initiate technical steps, there are some core steps to be followed. If you are serious about entering the stock market to make profits, you need to have in-depth knowledge.
Strategies to follow
- Trading system or strategy: You need to come up with a trading system or identify a strategy. A novice trader might perhaps follow moving average-crossover strategy. It monitors two moving averages say 200 and 50-day, on certain stock price movement. In case, 50-day short-term moving average crosses 200-day long-term moving average, then it generates buy signal and indicates upward price trend. For sell signal, it is just the opposite.
- Identify securities: Above strategy might not fit all securities or stocks. Hence, it is found ideal especially for highly volatile and liquid stocks rather than stable or illiquid stocks. Diverse parameter choices may be desired for different contracts or stocks. In such a case, different moving averages will be desired like 50-day and 15-day moving average. You will be provided with proper training and also learn how to select stock for intraday.
- Monitor/Track trades: Varying functionality levels may be desired by trades based on the strategy they choose to follow. Day traders, for example, may desire margin account to derive market maker visibility and Level II quotes access. Even there may be preferred a basic account as it is considered to be a low cost option available for newcomers.
- Identify right brokerage: The trading account you choose should support your chosen security type like options, futures, penny stock, common stock, etc. Desired functionality should be offered to monitor, track chosen technical indicators while ensuring low costs thereby preventing losing of profits. Basic account having moving averages will work for newcomers on candlestick chart.
- Additional tools or Software: Other futures may be desired to optimize overall performance. Some traders might choose to utilize automated trading systems for executing trades on its own while others prefer getting access to trading even while moving around or mobile alerts to take decisions.
Getting the best out of the training As an investor, you may want to leverage both technical and fundamental analysis to make proper investment decisions. The truth is that technical analysis provides you with ample knowledge and prevents costly mistakes.
