TECHNICAL ANALYSIS FOR STARTERS

Investors have two trading methods to follow - fundamental analysis and technical analysis. Many investors began with using fundamentals, others employed technicals. But as time passes by, most investors combine fundamental and technical analysis.

But this article will focus on the technical analysis because it is popular early in the trading day. Simple to follow, it does not require financial expertise, easy and free access to charts or graphs on finance portals and exchange websites, and complicated number crunching.

How to start trading the technicals? First and foremost, identify technical analysis strategies and set the trading parameters to follow. Doing this solely depends on the trader. Next, find out tradable securities suitable for this strategy. Not every technique is applicable to all stocks or securities. Then, look for the right trading or brokerage account for executing trades. Find also the interface to trail and monitor the required technical parameters along with a fast and strong internet connection. And lastly, determine any other necessary application or software needed for implementing the strategy.

Let us apply these steps in the example below.

Assuming Joe is trader and he will be using the Moving Average Crossover, a strategy that tracks two moving averages (15 days and 30 days) on a given stock price movement. This technique stipulates if a shorter period Moving Average moves above a longer Moving Average, it implies an upward price movement in the future and a buy signal. If below a longer Moving Average, it denotes a downward price movement and a sell signal. Having said that, Joe will use securities that are highly liquid and with high volatility. Then, Joe will open a basic trading account with live DMA indicators and utilize an order placing facility.

Here are some other pointers when using technical analysis…

• If always on the go, you may want to consider a subscription to a mobile alert service.
• It is fine to let your broker trade on your behalf as long as he strictly follows the set technical analysis criteria.
• Be familiar with the strategy’s limitations to minimize losses and save money.
• Study the rationale, logic, and computations encompassing this technique.
• Especially for novice traders, start small and then expand as you gain more experience. It is better to begin with only one or two stocks than large sums with several stocks and indicators to be watched.