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Technical Analysis Notes

Technical Analysis Notes

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Published by: optionscape on Sep 08, 2009
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Dirty Rotten Tricks Of Institutional Traders And How Knowing This Will Help YouAvoid Themhttp://www.guerillastocktrading.com/stock-trading/dirty-rotten-tricks-of-institutional-traders-and-how-knowing-this-will-help-you-avoid-themPREDATOR OR PREY?http://www.hardrightedge.com/wizard/ss1.htmhttp://trendsenseresearch.blogspot.com/2009/05/day-traders.htmlFollow institutional traders--here's howhttp://www.tradingmarkets.com/.site/stocks/commentary/todaysetfo/01262006-48953.cfmAugust 10, 2005August 17, 200520090627VRXCERNHMSYhttp://stockcharts.com/school/doku.php?id=chart_schoolhttp://stockcharts.com/school/doku.php?id=chart_school:overview{I} Overview of Financial Analysis -[A] Technical Analysis:Overall Trend: The first step is to identify the overall trend.This can be accomplished with trend lines, moving averages or peak/troughanalysis.As long as the price remains above its uptrend line, selected moving averages orprevious lows, the trend will be considered bullishSupport: Areas of congestion or previous lows below the current price mark supportlevels.A break below support would be considered bearish.Resistance: Areas of congestion and previous highs above the current price markthe resistance levels.A break above resistance would be considered bullish.Momentum: Momentum is usually measured with an oscillator such as MACD.If MACD is above its 9-day EMA (exponential moving average) or positive, thenmomentum will be considered bullish, or at least improvingBuying/Selling Pressure: For stocks and indices with volume figures available, anindicator that uses volume is used to measure buying or selling pressure.When Chaikin Money Flow (CMF) is above zero, buying pressure is dominant.Selling pressure is dominant when it (CMF) is below zero
Relative Strength: The price relative is a line formed by dividing the security bya benchmark.For stocks it is usually the price of the stock divided by the S&P 500.The plot of this line over a period of time will tell us if the stock isoutperforming (rising) orunder performing (falling) the major indexStrengths of Technical Analysis:1. Focus on Price2. Supply, Demand, and Price ActionIn its most basic form, higher prices reflect increased demand andlower prices reflect increased supply.3. Support/Resistance4. Pictorial Price History5. Assist with Entry PointSome analysts use fundamental analysis to decide what to buy and technicalanalysis to decide when to buy.Weaknesses of Technical Analysis:1. Analyst Bias2. Open to InterpretationIt should be pointed out that technical analysis is more like an art than ascience, somewhat like economics.Is the cup half-empty or half-full? It is in the eye of the behold.3. Too Late4. Always Another Level5. Trader's RemorseA 50-day moving average may work great to identify support and resistance forIBM,but a 70-day moving average may work better for Yahoo.Even though many principles of technical analysis are universal, each securitywill have its own idiosyncrasi.[B] What is Fundamental Analysis?Fundamental analysis is theexamination of the underlying forces thataffect the well being ofthe economy,industry groups, andcompanies.To forecast future stock prices,fundamental analysis combineseconomic,industry, andcompany analysisto derive a stock's current fair value and forecast future valueGeneral Steps to Fundamental EvaluationEconomic Forecast:The economy is like the tide and the various industry groups and individualcompanies are like boats.When the economy expands, most industry groups and companies benefit and grow.When the economy declines, most sectors and companies usually suffer.Many economists link economic expansion and contraction to the level ofinterest rates. Interest rates are seen as a leading indicator for the stock
market as well.Once a scenario for the overall economy has been developed, an investor canbreak down the economy into its various industry group.Group Selection:If the prognosis is for an expanding economy, then certain groups are likely tobenefit more than othes.A growth strategy might involve the purchase oftechnology,biotech,semiconductor andcyclical stocks.A defensive strategy might involve the purchase ofconsumer staples,utilities andenergy-related stocks.When stocks move, they usually move as groups; there are very few lone guns outthere.Many times it is more important to be in the right industry than in the rightstock!Narrow Within the Group:Company Analysis:Business PlanManagementFinancial AnalysisStrengths of Fundamental Analysis:1. Long-term Trends2. Value Spotting3. Business Acumen4. Knowing Who's WhoWeaknesses of Fundamental Analysis:1. Time Constraints2. Industry/Company Specific3. Subjectivity4. Analyst Bias5. Definition of Fair Value[C] Random Walk TheoryThe basic random walk premise is that price movements are totally random.Malkiel maintains that a buy and hold strategy is best and individuals should notattempt to time (or beat) the market."The more creativity you bring to the investment process, the more rewarding itwill be.The only way to maintain ongoing success, however, is to constantly innovate.That's much the same in all endeavors.The only way to continue making money, to continue growing and keeping your profitmargins healthy, is to constantly come up with new ideas."http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis{II} How to Analyze Charts -http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:what_are_charts[A] What Are Charts?A price chart is a sequence of prices plotted over a specific time frame.

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