Day Trading Techniques - Technical Analysis
Technical analysis of the stock market, or any other
market such as Forex, Bonds, Futures, is how most traders
and investors make their trading decisions. This the best
day trading technique that you can use to make money
consistently.
This is as opposed to fundamental analysis which most
people more agree is pretty much done as a way of making
trading decisions, unless of course you are Warren Buffet!.
You only have to think back to recent stock market scams
like Enron to know that it is almost impossible for the
average, and even very sophisticated fund manager or hedge
fund trader to really know what the real financial state of
a company is.
Just by reading the balance sheet and other quarterly
reports they release gives you a very limited insight into
the real health of the company. Whereas the technical
analysis charts of the company tend to give the real picture
of what the market thinks of the value of the company. In
the case of Enron even simple technical analysis told you to
SELL when the stock was in the $80-90 range, this is why
technical analysis of stocks is so popular.
So what is the secret to technical analysis?, I’m about to
tell you, here are my golden rules:
* Only use 3-5 simple technical analysis indicators
* Make sure that you understand how the indicators that you
have selected work, what the parameter settings are and in
what market conditions they are effective
* After selecting your indicators and parameter settings
don’t mess with them.
The real secret to technical analysis is to become VERY
familiar with your chosen indicators, and really this can
only be done by watching and studying the market, so that
you get to the point that you TRUST them.
The fact is that in any market, for each bar, there are only
5 pieces of information, the open, close, high, low and
volume, yet there are now hundreds of indicators. Most of
these indicators are displaying much the same information
and so are redundant.
For the record my set of indicators are:
* 4 Simple Moving Averages
* Bollinger Bands
* MACD
* Stochastics |
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