Many people are familiar with “day traders,” who work from home and reap the rewards of their hard work without ever having to interact with anyone else.
In order to accomplish this, how do they accomplish it?
In this article, we’ll focus on ‘Technical Analysis,’ which is one of the most commonly used techniques.
In order to avoid confusion, the author is not a financial advisor and this article is not meant to direct or advise you on how to invest your savings or money.
Just to describe some of the author’s observations, real or imagined, this article is here.
Most people, especially when it comes to matters of public record, will act in the same way they believe others will act.
The stock may turn around (after the dive) and go back up, but if people continue to buy until it reaches a certain price and then stop (for whatever reason), they will be more wary of keeping the stock after it goes over that price again.
Resistant lines are common
Resistance lines are constantly being broken, but there do appear to be patterns in the pricing histories of stocks.
When the odds favour an uptick in the price of a stock, a technical analyst’s job is to identify those situations.
Using patterns they’ve identified, technical analysts make predictions about the future of the stock market and act accordingly.
Even though no one can accurately forecast the direction in which stock prices will go 100% of the time, day traders make money by playing the odds in their favour.
It is possible to make money in the stock market if you believe that a certain stock will rise in value.
Recognizing this possibility, you decide how much further it can fall before selling.
As long as you stay within that range, you can ride it to the point where *you expect it to start falling'””” (a resistance line).
You’ll make money on your overall investments if you do this (lose a little or gain a lot) over and over again and make money 50% of the time.
Consistency is the key
Don’t risk getting caught in an inverted spike if you don’t get out of the way when it drops too far and never ride it above the point where you expect it to turn.
You need a stock analysis software package or a website where you can study stock trends in order to learn about patterns.
The patterns that Technical Analysts are looking for can be summarised as follows:
“Short” trading is the practise of selling a stock and then re-buying it when its value falls below a predetermined price.
Brokers allow you to do this, but in the end, you don’t actually own the stock.
Essentially, you’re buying stock with the expectation that it will go down rather than up.
To name just a few, there are the following:
- Head and Shoulders: The stock price rises and falls in a predictable manner
- Once again, it rises and then falls back to the same point, only this time it’s a little bit higher
- Re-emerges at the same point and falls back down again
- Head and shoulders appear to be depicted in this pattern
- To continue the downward trend, it is necessary to break below the “neckline.
- In this scenario, the investor would place a sell order on the stock
- Inverted versions of this pattern are common as well
- As a result, it would be advisable to go long (purchase the stock).
The stock drops and then rises in a cup-like pattern, resembling a handle.
To form what appears to be the cup’s handle, it descends and then rises (around 50 percent of the cup bottom).
As of this moment, we can see two points on a horizontal line where the stock reached and then returned to the top of a cup.
When the stock reaches that level for the third time, the execution time is reached.
The stock is expected to rise above the cup’s top to the next higher level of resistance.
Triangle or Wedge: The price of the stock rises and falls, then rises and falls again, with a decreasing distance between the highest and lowest price each time.
A triangle would be formed by drawing a line connecting the high and low prices, and then another line connecting the two.
We can expect to see continued movement after a triangle breakout occurs.
The Flag and the Pennant are two other patterns that look a lot like this one.
An example of a “double top” would be an increase in price followed by a drop to a certain point before rising again.
Whenever the price reaches the previous turning point, it does so again.
Even though the design resembles an M, the lines are all on the diagonal.
It is expected to continue to fall if it breaks below the point where it bottomed out (in the middle of the M).
It’s time for a cut.
A W inverted would indicate a long period of time (buy).
The art of reading these patterns is extremely difficult, and there are a lot of them.
This article is not meant to teach you how to use Technical Analysis to buy and sell stocks.
It is only meant to serve as a springboard for further exploration of the topic.
Using Technical Analysis, you can learn a great deal about stock patterns.