Technical Analysis is a Must For Investors Who Want to Learn Stock Market Investing Techniques
January 13, 2010 by Christopher Fitch
Filed under Stock Market
For people looking to learn stock market investing techniques, a great place to start is through gaining an understanding of technical analysis tools. Although technical analysis is never enough determine whether to execute a trade, it can provide statistical data on entry and exit points.
In terms of the strongest and most popular technical analysis measurements, the following are three of the greatest technical formations that you will want to understand as you learn stock market investing techniques. While these three are not comprehensive by any stretch of the imagination, they provide a solid starting point:
Head and Shoulders. Considered one of the most reliable technical indicators, this type of formation gives investors an extremely reliable indication as to where the stock is headed — up or down — over a specified period — short, medium, and long-term. A head-and-shoulders formation has three sharp points. In a bottom formation, there are three low points with the second point (the head) being lower than the first and third points. This pattern gives a strong and reliable indication to buy the stock. As well, it is easy to spot, particularly for investors who are just starting to learn stock market investing techniques. In terms of volume, the first point (the left shoulder) will come with higher volume than the last point (the right shoulder).
Gaps. Arguably the easiest indicator to see, a gap occurs when a low for one day is higher than the high of the previous day. Gaps provide resistance and support levels for stock and while people beginning to learn stock market investing techniques are drawn to such patterns, they should be traded cautiously. When an ongoing trend crosses over a previously formed gap, it normally signals a strong price movement is occurring or about to occur.
Bollinger Bands. Used as a tool, Bollinger Bands are not stock price patterns. Instead, they are an oscillator, which tells investors about the probability of a stock trend. For people who want to learn stock market investing techniques, Bollinger Bands are a must. They give a buy or sell signal based on a stock’s volatility as it moves two or three standard deviations from its mean. When the stock price closes at or above the upper band, it triggers a sell signal (vice versa for the lower band).
For people who want to learn more about stock market investing techniques, there is a wealth of information available on line, most of it at no cost. However, for more serious investors, stock trading software completes much of the work for you. In fact, many brokerages offer technical analysis resources for free with most accounts.
Christopher Fitch has nearly 20 years of Investment Management experience. He is the founder of the Mutual Fund Site.org.
