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Risk comes from not knowing
An investor's worst enemy is not the stock market but his own emotions. The key to making money in stocks is not to get scared out of them. PSE Academy, the official market education website of the Philippine Stock Exchange, Inc. (PSE) conducted a free webinar about Technical Analysis. The resource speaker was Mr. Juanis Barredo, Vice President of Sales and Customer Support, COL Financial Group, Inc. Here's the excerpt from the webinar.
What Is Technical Analysis?
The Need For Timing
Markets come with volatility!
Technical Analysis is the study of price movement of any type of security pictured into a graph or chart for the purpose of spotting and following price trends.
The Study Of Price
Price discounts everything
The market price tells you everything you need to know about a stock's expectations.
Prices move in trends
An object in motion tends to stay in motion while an object at rest tends to stay at rest.
History repeats itself
People will tend to react in similar fashion to certain kinds of stimuli grooming repettitive patterns of price activity.
Looking At Prices Thru Graphs
Open - the first price a stocks trades at
High - the highest price it reaches in a trading day
Low - the lowest price is tags during a trading day
Close - the final trading price of the day
Advantages of looking at graphs/charts
Studying Volume With Graphs
Volume - measures the number of shares or value of those shares that trade in a day.
Spotting And Following Trends
Support And Resistance
Support is a price point underneath a market that shows heaviness in buying sufficient enough to prevent prices from falling down.
Resistance is a price point above a market that shows heaviness in selling sufficient enough to prevent prices from rising up.
Trade Idea: Buy near support and Sell close to resistance.
Trends are durable swings in market condition; they show the general direction of a securities' price over time.
Trendlines are guidelines that follow a trend that connect several areas of support or resistance to project buying or selling action over time.
Up Trendlines are drawn by connecting major lows or support areas.
Down Trendlines are drawn by connecting major highs or resistance areas.
Sideways Trends are drawn by connecting resistance points and by connecting support points.
State your time period:
(Decide your term then loo at data within that time frame.)
Trendlines In Action
Understanding Corrections And Area Patterns
Bull and Bear Cycle
Market's Self-Correcting Action
Remember that "it takes time to move a price a certain distance" ...any exaggeration must be paid for by an adjustment in time or price.
Extended prices will be 'fixed' by market forces.
Push out of a consolidation/pattern:
Breakout a condition where prices push themselves above a pattern's resistance commanding a "Buy"
Breakdown a condition where prices push themselves below a pattern's support commanding a "Sell"
Shape can unravel clues to its directional bias. Studying the various shapes of consolidations can aid in exposing who is wining the battle between buyers and sellers.
Size can tell us the eventual target to which a price could go after a breakout (or breakdown) scenario.
Types Of Area Patterns
Using Patterns And Volume In Graphs
Systems Trading: Technical Indicators
A Technical Indicator is a study of price data derived from various statistical formula plotted onto a graph.
It serves three basic functions:
To Confirm } Consequential Price Movements
Three most popular indicators:
A price-average line plotted onto a chart in direct reference to market price.
It can be used to:
MACD (Moving Average Convergence Divergence)
A lagging but effective momentum tool that uses a crossover system to justify changes in periodic trends.
It has three component lines:
A Buy signal is followed when:
A Sell or take profits when MACD crosses below the Signal Line.
RSI (Relative Strength Index)
A momentum-oscillator that swings from Overbought and Oversold conditions to highlight extreme ends of a price move.
It can also spot out Bullish or Bearish Divergence.
A Divergence is a lapse in strength shown in the RSI compared with its Price.
i.e in an uptrend, a higher-high in price compared with a lower-high in RSI shows a lapse in bullish force.
Putting All Together
Work On Your Own Trade Routine
Creating a Trading Plan
Practice the discipline technically evaluating your prospect - know your upsides and downsides and plan your action ahead of the trade.
A Justified Entry: Trade Filtering
Estimate Your Targets
Looking for Price Targets
Evaluate what your upsides can be by following these technical methods:
Establish Your Selling Stops
Triggered Exits using Support Stops:
Establish Your Risk Vs. Reward
Evaluate your prospects
A key component in being a successful trader is to determine your risk versus reward level and use that optimum ratio to guide your investment decisions.
Knowledge born from actual experience is the answer to why one profits; lack of it is the reason one loses...
Disclaimer: This excerpt from the webinar presentation is for educational and information purposes only. This should not be construed as a professional, financial, or investment advice, or recommendations from the PSE.
ABOUT THE BLOGGER
Ralph "Rap" was born and raised in the Philippines. An I.T. by Profession. An Investor. A Business Minded. An Introvert. A Photography Enthusiast. A Travel and Personal Finance Blogger (Lakbay Diwa and Kuripot Pinoy). A Traveler. An Adventurous. A Mountain Hiker. A Dreamer.
Currently works his way towards time and financial freedom.
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