The Investor Sentiment - Equity and investments forum for Sri Lankans
Search
 
 

Display results as :
 


Rechercher Advanced Search

Latest topics
» Resus Energy වැඩි බලය Trydan Partners යටතට
Yesterday at 6:13 pm by Ethical Trader

» Dividend Announcement
Yesterday at 6:12 pm by Ethical Trader

» Laughter the Best Medicine
Yesterday at 12:00 pm by කිත්සිරි ද සිල්වා

» JINS.N0000 ( Janashakthi Insurance PLC)
Yesterday at 10:06 am by CK

» බුද්ධ භවනා
Thu Feb 22, 2018 2:35 pm by Ethical Trader

» Happy Birthday
Wed Feb 21, 2018 7:28 pm by The Alchemist

» හවුල් ආණ්ඩුව තවදුරටත් පවතින බව පාර්ලිමේන්තුවට දන්වයි
Wed Feb 21, 2018 5:17 pm by Ethical Trader

» ජීවිතය පටන් ගන්නේ 60න්
Wed Feb 21, 2018 3:14 pm by lanka

» EAP ගනුදෙනුවේ සැඟවුණු ගැනුම්කරු හෙළිවෙයි
Wed Feb 21, 2018 2:39 pm by lanka

» මිලියන 4,000 ක අකිලගේ ටැබ් කොන්ත්‍රාත්තුව අබාන්ස්ට
Tue Feb 20, 2018 7:55 pm by nihal123

» Dhananath Fernando wins $ 10,000 for Sri Lanka in Think Tank Shark Tank in Asia
Mon Feb 19, 2018 11:35 am by Ethical Trader

» උදයංග වීරතුංග රැගෙන ඒමට පොලිස් නිලධාරීහු ඩුබායි වෙත
Mon Feb 19, 2018 8:24 am by soileconomy

» ධම්මික පෙරේරා කෝටි 16 ක කාරයක් ගෙනෙයි
Sat Feb 17, 2018 9:31 pm by soileconomy

» ආර්ථික අර්බුදය ඉක්මවා ගිය දේශපාලන අර්බුදය හමුවේ 'රුපියල'
Fri Feb 16, 2018 7:00 pm by Ethical Trader

» SAMP.N0000 (SAMPATH BANK PLC)
Fri Feb 16, 2018 2:18 pm by Ethical Trader

» APLA.N0000 (ACL PLASTICS PLC)
Fri Feb 16, 2018 11:12 am by pjrngroup

» විගණකාධිපතිගේ 2016 වාර්තාව මෙන්න
Tue Feb 13, 2018 12:31 pm by Ethical Trader

» Boost for foreign investment in Govt. securities
Thu Feb 08, 2018 12:45 pm by Ethical Trader

» අනිලානා පුද්ගලික නිකුතුවට කොටස්කරුවන්ගේ සහාය පතයි
Thu Feb 08, 2018 9:28 am by The Invisible

» CCS.N0000 ( Ceylon Cold Stores)
Wed Feb 07, 2018 7:39 pm by Ethical Trader

» ලෝක ආර්ථිකය කඩා වැටෙද්දී එහි බලපෑම කොළඹට දැනුන හැටි
Tue Feb 06, 2018 11:13 pm by nihal123

» තෙල් මිලේ වැඩිවීමෙන් ගුවන් ටිකට් මිල නගී
Tue Feb 06, 2018 11:04 pm by Ethical Trader

» ජනාධිපති පරීක්ෂණ කොමිෂන් සභාවෙන් ලද, සිංහල භාෂාමය වාර්තා තිස් හතර (34)
Tue Feb 06, 2018 11:04 pm by Ethical Trader

» විල්පත්තු "වන විනාශය": පෙත්සම සලකා බැලීමට අධිකරණයේ අවසර
Mon Feb 05, 2018 9:10 pm by nihal123

» බැඳුම්කරය: ඇලෝසියස් සහ පළිසේන අත්අඩංගුවට
Mon Feb 05, 2018 9:08 pm by nihal123

» TPL.N0000 (TALAWAKALE PLANTATIONS )
Sat Feb 03, 2018 1:02 pm by bear

» ජනශක්ති ගනුදෙනුව තීන්දුයි. වටිනාකම රුපියල් බිලියන 16 යි
Fri Feb 02, 2018 7:57 pm by nihal123

» කොළඹ කොටස් අසාමූහිකරණ පනත පාර්ලිමේන්තුවට
Fri Feb 02, 2018 5:42 pm by Ethical Trader

» BBC කණ්ඩායමක් තාලිබාන් පාලන කලාපයකට ඇතුල් වෙති
Thu Feb 01, 2018 5:05 pm by Ethical Trader

» වර්ෂ 152 කට පසු දර්ශනය වන 'සුපිරි නීල රුහිරු සඳ'
Thu Feb 01, 2018 4:58 pm by Ethical Trader

» ලංකා බැංකුවට අයත් ජනශක්ති හිමිකම විකුණයි
Thu Feb 01, 2018 4:54 pm by Ethical Trader

» අයවැය ක්‍රියාත්මක කිරීමේ දී පාර්ලිමේන්තුවේ අධීක්ෂණය දුර්වලයි
Thu Feb 01, 2018 4:52 pm by Ethical Trader

» ජනපති හා ADB අධ්‍යක්ෂ මණ්ඩල සාමාජිකයින් අතර හමුවක්
Thu Feb 01, 2018 4:51 pm by Ethical Trader

» තවත් කොටස් තැරැව්කාර සමාගමක් වසා දමයි
Thu Feb 01, 2018 4:50 pm by Ethical Trader

» ජනපතිගේ රැලිය ආවරණය කිරීමට ගිය මාධ්‍යවේදීන්ට "තර්ජන"
Wed Jan 31, 2018 6:59 pm by soileconomy

» Bank of Ceylon divests stake in Janashakthi Insurance
Tue Jan 30, 2018 3:58 pm by TraderCSE

» වෛද්‍ය වර්ජනය: රජයේ වෛද්‍ය නිලධාරීන්ගේ සංගමයේ ඉල්ලීම් මොනවාද?
Mon Jan 29, 2018 6:36 pm by Ethical Trader

» නිවුන් අලි උපත්: මේ කරුණු දැන සිටියාද?
Mon Jan 29, 2018 12:14 pm by Ethical Trader

» Perpetual Treasuries
Mon Jan 29, 2018 7:43 am by Danidu

» කලා කෘතියක් ඉල්ලූ ජනාධිපති ට්‍රම්ප් වෙත 'රන් වැසිකිලියක්' - වාර්තා
Sat Jan 27, 2018 6:37 pm by Ethical Trader

» TJL.N0000 (Textured Jersey Lanka PLC.)
Fri Jan 26, 2018 6:32 pm by Ethical Trader

» සේවා ස්ථානයේ අරියාදු සහ අඩන්තේට්ටම් : 'බුලි' වුණොත් මොකද කරන්නේ?
Thu Jan 25, 2018 5:02 pm by Ethical Trader

» RULES ON ALL OR NONE (AON) BLOCKS
Thu Jan 25, 2018 4:55 pm by Ethical Trader

» Time is of essence in dealing with dengue:Expert, Recent deaths could be due to patients "coming in late" for treatment
Thu Jan 25, 2018 2:08 pm by AjithR

» නියම බුදු දහම
Thu Jan 25, 2018 12:42 pm by Ethical Trader

» "දූෂණය" ගැන මහින්ද රාජපක්ෂට නඩු පවරන්න - ජනාධිපති කොමිසම
Wed Jan 24, 2018 7:04 pm by Ethical Trader

» හිඟයක් වැළැක්වීමට ලේ දන් දෙන්න: ජනතාව වෙත ඉල්ලීමක්
Tue Jan 23, 2018 7:12 pm by Ethical Trader

» බලාගෙනයි, 'ගුවනින් අසූචි'!
Tue Jan 23, 2018 7:10 pm by Ethical Trader

» සිව් හෙලයේ ඉතිහාසය නිවැරදි කිරීම
Tue Jan 23, 2018 11:51 am by Ethical Trader

» ප්‍රගීත් එක්නැලිගොඩ: "ෆයිල් අතුරුදහන්වීම" ගැන සන්ධ්‍යා හමුදාපතිට කිවූ දේ
Thu Jan 18, 2018 12:13 pm by Ethical Trader

February 2018
SunMonTueWedThuFriSat
    123
45678910
11121314151617
18192021222324
25262728   

Calendar Calendar

Disclaimer


Information posted in this forum are entirely of the respective members' personal views. The views posted on this open online forum of contributors do not constitute a recommendation buy or sell. The site nor the connected parties will be responsible for the posts posted on the forum and will take best possible action to remove any unlawful or inappropriate posts.
All rights to articles of value authored by members posted on the forum belong to the respective authors. Re-using without the consent of the authors is prohibited. Due credit with links to original source should be given when quoting content from the forum.
This is an educational portal and not one that gives recommendations. Please obtain investment advises from a Registered Investment Advisor through a stock broker

Technical Analysis: Tools & Tactics

Go down

Technical Analysis: Tools & Tactics

Post by nihal123 on Sun Apr 19, 2015 11:26 pm

Technical Analysis: Tools & Tactics

S&P Capital IQ

Just as with fundamental analysis, there are tools that technical analysts use to determine when to buy or sell a stock. For some people, technical analysis can seem confusing. With practice, however, it should make more sense.

Volume: An Underestimated but Powerful Indicator
Volume shows how many shares changed hands during a given period. It is the fuel that drives stock prices higher or lower. By studying the volume of shares being traded, you can obtain clues as to whether a stock is moving because of true buying or selling interest or other factors that could influence the direction of the stock.

In today's market, billions of shares of stock are traded every day on all three stock exchanges. If less than a billion shares are traded during the day, it is considered a light volume day. It isn't hard to guess why this is true. In 1929, only 8% of the people in the United States were invested in the stock market. Now it is estimated that over 60% of the people are invested in the market, either through mutual funds or directly in stocks.

Sometimes you will hear people on Wall Street talk about a liquid market. This is another way of saying that there is a lot of volume in the market or in an individual stock. The pros on Wall Street want to see a lot of liquidity and do everything in their power to bring people into the market, especially buyers. The more liquid a stock is, the easier it is to get into and out of it. That is why you want a lot of liquidity in the market.

Moving Averages: A Simple but Powerful Tool
One of the simplest but most valuable technical indicators for both investors and traders is the MOVING AVERAGE (MA). A moving average is the average price of a stock for a specified period-for example, a specified number of hours, days, or weeks. When plotted on a chart, it is displayed as a line that moves forward with each trading day. When moving averages are put on a chart, they give technicians a lot of clues about where a stock is headed.

Many technical analysts use moving averages as support and resistance. If the stock price rises above the moving average, this is seen as a bullish sign. Conversely, if the stock price drops below the moving average, this is seen as bearish and is a signal to sell. In particular, many institutional investors use the 200-day MA as support and resistance. For example, if the stock price is trading below the 200-day MA, this is a signal to sell. If the stock price is trading above the 200-day MA, this is a signal to buy.

Short-term traders tend to use the 40- or 50-day MA to determine support and resistance levels. It's sometimes uncanny how a stock can nudge up to the 40- or 50-day MA and then immediately reverse direction. Keep in mind that you should not base your trading decisions solely on moving averages (or any other technical indicator), but the MA does give you an idea of the strength and direction of the stock trend.

On-Balance Volume (OBV): A Measure of Volume
ON-BALANCE VOLUME (OBV) is one of the most underutilized but important indicators. OBV measures volume, which, as you remember, is the force that makes stocks go up or down. When you put OBV on a chart, a volume line appears at the bottom of the chart on top of the volume bars. OBV basically measures how much money is flowing into or out of a security.

If the OBV line is dropping, it tells you that people are selling. If the OBV line is rising, it tells you that people are buying. After all, no matter what is happening in the market, if people are pulling money out of a stock, its price will go down. Conversely, if people are buying a stock, its price will go up. Because technical analysis is not an exact science, many traders use OBV to confirm what is happening with a stock. For example, let's say that a stock is up by 3 points but the OBV is dropping. This tells you that although the stock is temporarily going up, it's not going to last. For whatever reason, people, most likely institutional investors, are selling. The dropping OBV is a signal that you should immediately sell the stock.

One of the biggest problems with technical analysis is that you sometimes get false signals. OBV helps you determine whether the buying and selling pressure is real or whether a reversal is imminent. For example, let's say that the price of a stock is falling but OBV is rising. An alert trader will buy, not sell, because it's possible that the stock price will reverse as more buyers accumulate shares.

Relative Strength Indicator: Measure of Whether Stocks are Overbought or Oversold
The relative strength indicator (RSI) measures the relative strength or weakness of a stock when it is compared to itself over a specified period. It is an OSCILLATOR with an upper and lower band that ranges from 0 to 100 on a vertical scale.

To understand the RSI, you need to know what is meant by RELATIVE STRENGTH and RELATIVE WEAKNESS, two of the most important concepts in technical analysis. Relative strength means that a stock is strong compared to another stock or to an index. Generally, you avoid buying stocks with relative weakness.

When used in conjunction with other technical indicators such as moving averages and OBV, the RSI is a powerful tool that can help to identify whether a stock is OVERBOUGHT or OVERSOLD. This allows you to determine which stocks are going to run out of energy and succumb to the bears (overbought). On the other hand, the RSI will also help you to identify stocks that have fallen and are about to reverse and move higher (oversold).

For example, if the stock price is dropping, but the RSI rises above 70 and then crosses back down, this is a sign that the stock might reverse direction (this price reversal is called DIVERGENCE). Conversely, if the stock price is rising, but the RSI drops below 30 and crosses back up, the stock might reverse. The idea is that the stock price will eventually move in the direction of the RSI.

Bollinger Bands: Another Measure of Whether Stocks are Overbought or Oversold
Like the RSI, Bollinger bands are an OSCILLATOR that helps traders identify whether a stock is overbought or oversold. Bollinger bands have two lines, an upper and a lower band with a gap between them that expands or contracts as the stock price moves. You should keep your eye on the third line in the middle. This is called the price indicator, and where it goes signals whether a stock is about to reverse direction.

Technicians look for a number of signals when using Bollinger bands. First, if the two outer bands move so close together that they are almost touching (narrow), this is a signal that there could be a sudden move in the stock price, either up or down. Second, if the price indicator is pushed well outside the upper or lower band, this means that there is strong buying or selling activity. Many times, a stock will ride the upper or lower band for minutes or hours and then cross through. Often, if the price indicator begins in one band, it will cross to the other band. This tells you that in the next few minutes, or perhaps hours, the stock price will reverse direction.

The good news is that in the hand of an expert, technical indicators like Bollinger bands are extremely useful. The bad news is that the indicators change so quickly that they are useful primarily to short-term traders. As always, you should experiment and practice before risking real money on technical indicators or oscillators.

One of the problems with technical analysis is that it is extremely difficult to read the signals correctly. If all it took to be successful in the market were sophisticated oscillators and indicators, then most people would use only technical analysis. Although most investors should have a basic understanding of how to read charts and how to use technical indicators like moving averages, this probably won't help for long-term investments. After all, technical analysis is most useful for short-term decisions.

Although charting stocks can be fun and profitable, you must also be careful to keep it simple. Many traders find that the more indicators they use on a chart, the more confused they get. It is what one trader friend of mine calls "analysis paralysis." You spend so much time studying charts that you don't make trades. Keep it simple-the less complicated the information on your chart, the better.

Source/Disclaimer: Excerpted from Understanding Stocks by Michael Sincere. © 2004 by The McGraw-Hill Companies.
avatar
nihal123
Top contributor
Top contributor

Posts : 4351
Join date : 2014-02-24
Age : 51
Location : Waga

Back to top Go down

Back to top


 
Permissions in this forum:
You cannot reply to topics in this forum