Security analysts who focus on financial fundamentals failed to flag the major stock-market fiascos, such as Enron and WorldCom, until it was too late. Could technical analysis have provided a better early warning? The answer seems to be yes.
Rather than relying on something outside the market to forecast stock prices, relying on the market itself has proven to be a sound method. Above all, market gives one continuous information whereas fundamentals not.
By looking at where the market is and how it got there using charts, technical analysts rely measuring changes in supply and demand.
Over time, the price changes, created by buying and selling behavior, create partners on the charts. Each pattern is usually followed by a certain high- probability response in the market. This is not to say that charts can predict the future. rather they lay the foundation for the bottom-line decision to buy, sell or hold, which is really all that counts.
In other words would technical analysis have told us to get out of stocks like Enron and WorldCom? The answer is “yes”. May be not at their peaks but certainly before they imploded, and that is no trivial triumph. Technical analysts did not know what was coming down the pike, but they knew enough not to own the stock.
It is usually kind enough to tell us to get out of the way before small losses become catastrophic. The charts are simply the earpieces we just to listen the message.
We’re going to break down stock trading training for beginners so it doesn’t seem scary. One of the first things you need to do when you start out is to pick a good broker. A stock broker is going to be where you do all your business. Picking one that has large commissions and fees can be detrimental to a beginner.
ReplyDeleteAn important second step is going to be learning how to read a stock chart. The stock chart holds all of the clues to which direction the stock is going to move. Watch our ThinkOrSwim video on charts setup.
Another great resource for learning to read a chart is stockcharts.com. They have a chart school for any questions that you might have. Charts can look like Greek when you’re starting out. The more you look at a chart, the more you’ll understand it and be able to predict trends.