Introducing Technical Analysis

This book describes how to spot market plunges, select sectors and stocks via Technical Analysis. Technical analysis (TA) is the analysis of the price movements and the short-term trend and possible reversal, while fundamental analysis focuses on metrics such as price/earnings ratio and debts.

Traders use TA a lot and can profit by shorting stocks. Investors can use them to find the entry points and exits points and some investors only buys stocks with positive long-term trend (using SMA-200%). Many times stock analysis based on fundamentals fail when the evaluation is solely based on fundamentals.

Technical Analysis (TA) has the following characteristics:
• Most of the time, TA is profitable in the short term (less than 3 months). The weather man is more accurate in tomorrow’s weather rather than a month away. TA can also signal the reversals.

• It is too many signals if you have more than three TA parameters. To start, use SMA (Simple Moving Average) and RSI(14); both are available from Finviz.com without charting.

• You can combine TA with fundamentals such as a rising SMA50 with increasing Insider Purchases. For market timing, TA is a huge part, but many fundamentals should be considered too. Technical analysis wins for the following reasons:

• Information such as a new product or a major lawsuit pending is not reflected timely in fundamentals, but rather in technical analysis. It gives us guidance in understanding the trend of a stock or even the entire market.

• Most TAs are based on accumulated data. For example, if RSI(14) is greater than 65, most likely this stock is overbought. If there is no reason for this condition, you may consider to sell it.

• When too many investors follow TA, it would become self-prophecy.

• Do not act against the trend. The fundamentalist may buy a stock when it loses 50%, the TA investor most likely will not buy it. Many times the losing stocks will lose again 25% or so. The TA investor most likely buys it on the way up.

Size: 50 pages (6*9)
Last update: 05/2022