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Technical Analysis for Non-Professional Stock Traders
Technical analysis is a premier tool
for many professional traders. It gives them a lot of
information upon which they can base their trading decisions.
The days that these tools were only available to the
professionals have past. These days everyone who has
access to the Internet can use technical analysis and
many of the tools that are available to the public these
days are more sophisticated than the tools used by professional
traders only a decade ago.
"But I'm not technical." you
might say. This would be a true statement for the majority
of the population. The word 'technical' sometimes frightens
people and causes them to stay clear of anything that
might seem too difficult for them. There is no doubt
that this gives at least a partial explanation why so
many private investors don't use technical analysis
in their buying and selling decisions.
When it comes to technical analysis
the word 'technical' is slightly misleading to the general
public. Of course it took a lot of technical market
knowledge to put many of the tools and market indicators
together, but you don't really need any technical background
to benefit from these tools. You could say that all
the hard work has already been done for you. In this
respect using technical analysis is a lot like driving
a car. Almost everyone can learn how to drive a car.
When driving, one of the things you should keep track
of is your current speed. fortunately car manufacturers
have equipped their vehicles with a nice little piece
of technology that tells us the car's velocity. Putting
that speedometer together took quite a bit of technical
knowledge. However, we as drivers don't have to worry
about that because it has been taken care of. We can
just look at the display and have the information presented
to us. Of course then it's up to us to interpret the
information correctly.
You don't necessarily have to understand
exactly how a market indicator works as long as you
can interpret its signals correctly. And that is not
always as difficult as it seems. In many cases it may
be a bit more complicated than reading the speedometer
in your car, but after a while you will find it becomes
second nature. This takes practice of course, but let's
face it, so does driving a car.
With the variety of technical indicators
and the large amount of technical terms it's easy to
get overwhelmed. The best way to prevent this is to
keep it simple and start small. A smart way to get better
acquainted with technical analysis is to take a fairly
simple indicator, for example a 50 day simple moving
average. The second step is to start looking at different
charts using only this one indicator. Not just two or
three charts or ten. Start by going through at least
a couple dozen charts. As you go through these charts
you will start to notice certain patterns. Pattern recognition
is something we as human beings are quite good at. We
react of of patterns in almost everything we do. Our
brains are trained to recognize different patterns.
When studying charts patterns are exactly what we are
looking for. Once we start to recognize these patterns
we can start assigning meaning to them. Some patterns
clearly indicate that the market is bullish while others
are typical for bearish market conditions. Of course
this will not allow you to predict the markets but it
will enable you to assess probability of certain outcomes.
And this in turn will help you make better trading decisions.
If you are not using technical analysis
yet you may find that it is a valuable tool to help
you make the right trading decisions. And if you are
already using various indicators you know that there
is always room for refinement.
1howto.com
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