Resources On The Topic: Technical Analysis For Dummies by Barbara Rockefeller
Chart Your Way To Profits by Tim Knight
Yahoo Finance
Rob Black's Website and Podcast
Chart Your Way To Profits by Tim Knight
Yahoo Finance
Rob Black's Website and Podcast
When I say the word "lemmings", what comes to mind? Most of us think of a herd of lemmings following their leader off a cliff to a horrible mass suicide. While the legend of the lemming is pure fiction, the lessons learned apply extremely well to human nature. In fact, a whole genre of investment strategies have been born by studying this "herd mentality". That genre is known as Technical Analysis. We discussed Value Investing (aka fundamental analysis) in a previous posting, and now we will look at it's evil brother.
For starters, let's briefly discuss the herd mentality and talk about a case study, the recent housing collapse. Home prices escalated at an utterly unsustainable rate over the past few years, constantly luring in more and more investors. Many people who rode this wave up made millions as long as they were smart enough to jump out of the game before it all came crashing down. Technical analysis aims to use mathematical methods to look for these waves in the stock market. If a wave can be identified, investors can hop in, ride the wave up, and (HOPEFULLY!) hop out before it all comes crashing down.
While this posting is far too brief to dive into the full details of technical analysis, let's hit the basic concept:
These waves (known as trends) often occur in similar, repeatable patterns, which can be manipulated for financial gain.
Books such as Technical Analysis For Dummies do a great job of introducing these various trends, discussing their success rates, and helping you use the patterns to trade more effectively. If done properly, you will learn when to enter, how to set limits for your trades, and finally, when to exit in order to maximize your gains and minimize your risk of getting caught in a wave that's crashing down.
So how do you get started down this path to prosperity? Well this path really requires a LOT of studying. The most popular chart patterns take some serious skill to detect, so your best bet is to start by jamming your head into one of the resources above. After some time reading, your next move is to head over to Yahoo Finance. This site is a fantastic resource for studying and tracking stocks. They have a ton of powerful charting tools to help you easily spot and identify trends. You can add trending tools such as Bollinger Bands, Moving Averages, and MACD (Moving Average Convergence-Divergence). With a little knowledge of common trends and Yahoo Finance's powerful charting software, you can tear through a ton of stocks in a hurry until you find some that fit your trend criteria.
Now that you have found some charts that appear to be "trending", it is time to take the next steps.
1) Determine the right point to make an entry, and do it.
2) Set a trailing stop, basically an automatic selling point that protects against quick and unexpected reversals.
3) Follow the stock religiously, and when your selling rules are met, EXIT!
In the end, the true beauty of charting is that it has become a self-fulfilling prophecy. The more people that study charting, the more times the patterns fulfill their expected outcomes. Of course, this also means that you will be competing against some brilliant mathematical minds, so set your rules, stick to them, and suppress any emotional responses. You may miss some big runs, but you will also be protected against those devastating drops. The key is to run with the lemmings, but do everything you can to jump out of line right before that cliff......
So what are you waiting for? Pick up a book, listen to Rob Black's podcast, and set up a fake portfolio on Yahoo Finance. You'll be talking the technical analysis talk and walking the technical analysis walk in no time!
Good Luck!
Keys to Success:
Study! You will be competing with some great minds, so don't bring a knife to a knowledge gunfight.
Set Rules and Stick to Them. There are a ton of different techniques, so pick one you like and follow it religiously.
Don't Be Afraid To Miss The Tail End Of a Run Up. Just ask any homeowner who got burned in the housing collapse and they will tell you how painful it can be. Better to jump out too early than too late.
Ask For Help. As great as Yahoo is, finding great trending stocks is not easy. Listen to podcasts, watch TV shows, and count on some others to help you find the big winners.
For starters, let's briefly discuss the herd mentality and talk about a case study, the recent housing collapse. Home prices escalated at an utterly unsustainable rate over the past few years, constantly luring in more and more investors. Many people who rode this wave up made millions as long as they were smart enough to jump out of the game before it all came crashing down. Technical analysis aims to use mathematical methods to look for these waves in the stock market. If a wave can be identified, investors can hop in, ride the wave up, and (HOPEFULLY!) hop out before it all comes crashing down.
While this posting is far too brief to dive into the full details of technical analysis, let's hit the basic concept:
These waves (known as trends) often occur in similar, repeatable patterns, which can be manipulated for financial gain.
Books such as Technical Analysis For Dummies do a great job of introducing these various trends, discussing their success rates, and helping you use the patterns to trade more effectively. If done properly, you will learn when to enter, how to set limits for your trades, and finally, when to exit in order to maximize your gains and minimize your risk of getting caught in a wave that's crashing down.
So how do you get started down this path to prosperity? Well this path really requires a LOT of studying. The most popular chart patterns take some serious skill to detect, so your best bet is to start by jamming your head into one of the resources above. After some time reading, your next move is to head over to Yahoo Finance. This site is a fantastic resource for studying and tracking stocks. They have a ton of powerful charting tools to help you easily spot and identify trends. You can add trending tools such as Bollinger Bands, Moving Averages, and MACD (Moving Average Convergence-Divergence). With a little knowledge of common trends and Yahoo Finance's powerful charting software, you can tear through a ton of stocks in a hurry until you find some that fit your trend criteria.
Now that you have found some charts that appear to be "trending", it is time to take the next steps.
1) Determine the right point to make an entry, and do it.
2) Set a trailing stop, basically an automatic selling point that protects against quick and unexpected reversals.
3) Follow the stock religiously, and when your selling rules are met, EXIT!
In the end, the true beauty of charting is that it has become a self-fulfilling prophecy. The more people that study charting, the more times the patterns fulfill their expected outcomes. Of course, this also means that you will be competing against some brilliant mathematical minds, so set your rules, stick to them, and suppress any emotional responses. You may miss some big runs, but you will also be protected against those devastating drops. The key is to run with the lemmings, but do everything you can to jump out of line right before that cliff......
So what are you waiting for? Pick up a book, listen to Rob Black's podcast, and set up a fake portfolio on Yahoo Finance. You'll be talking the technical analysis talk and walking the technical analysis walk in no time!
Good Luck!
Keys to Success:
Study! You will be competing with some great minds, so don't bring a knife to a knowledge gunfight.
Set Rules and Stick to Them. There are a ton of different techniques, so pick one you like and follow it religiously.
Don't Be Afraid To Miss The Tail End Of a Run Up. Just ask any homeowner who got burned in the housing collapse and they will tell you how painful it can be. Better to jump out too early than too late.
Ask For Help. As great as Yahoo is, finding great trending stocks is not easy. Listen to podcasts, watch TV shows, and count on some others to help you find the big winners.
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