Do you know when to buy a stock? You buy when it is at a good price. Well, what is a good price? Ahhh, now comes the technical analysis part.
There are several methods to analyze the value and price of a stock. Value and price are not always the same number. Let’s take a look at fundamental and technical analysis.
Fundamental Analysis involves Income Statements, Balance Sheets, Growth Rates, Sales Growth Industry Comparisons and much more. This research process is a bit involved but definitely worth it to find a good company with solid potential to add to your portfolio.
Technical Analysis is more visual and involves a price chart and other technical indicators. Using a long term view up to 1-3 years gives an overall view of where this stock has been and where it has turned around. Traders watch these places of hesitation or turns to time entries and exits. Shorter term views of a few months are helpful for shorter term trades. Technical analysis brings a 3rd dimension to a 2 dimensional analysis.
Price Charts measure the movement of a stock from open to high to low to close of a given time period. Example: a daily chart measures the movement of that day. The most popular is the candlestick chart or a line chart.
Volume measures the number of shares traded during a specified time period. Many use an average daily volume as a standard analysis tool. Look for a company that has good consistent trading activity. 500,000 daily shares traded is not uncommon.
Moving Averages are lines that connect the close of each period included in that average time frame. A ten daily moving average is a line that connects the average of the close of the most recent 10 trading days. Moving averages are more accurate showing support and resistance lines on a price chart.
Another popular technical analysis tool if the Fibonacci Support and Resistance. Robert Roy, professional trader and educator is an expert with Fibonacci and uses this technical tool as a major part of his Technical Analysis. He has an online class Fibonacci Secrets Revealed that can take your trading to another level.
Bollinger Bands are a common technical tool used to gauge momentum, both on a daily and intraday chart.
There are technical indicators to measure momentum, support and resistance, divergence, overbought and oversold. Find just a few of the most widely used ones that make sense to you and don’t get lost in the world of Technical Analysis Paralysis.
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