The Art of Technical Trading in Stock Market

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Technical Trading is based on Technical Analysis which include not only statistic analysis but also an art of using historic prices to get direction of future price trend. It measures up/down trends, reading factors determining those trends. Online trading app makes it easy to do technical analysis of the stocks.

5 Factors of Technical Analysis in Stock Trading

1. Study Long-Term Charts

Begin a chart analysis targeting periods, defined within certain monthly or weekly charts spanning several years. A larger scale “study of long hauling period” provides more insights, visibility and a better long-term perspective on a market. Once the long-term chart has been developed, then consult daily and intra-day charts. This way drill down to desired periodical charts.

A standalone short-term market view may prove fatal and highly deceptive. Even if you only trade the very short term with limited stocks, however the money invested is definitely your hard earned money. You will do better if you’re trading in the same direction after observing the intermediate and longer term trends.

2. Trend Identification

Determine the trend before following it. Market trends come in many sizes depending on the period selection; long-term, intermediate-term and short-term. First, determine the industry which one you’re going to trade and use the appropriate chart. You must ensure that you trade in the direction of selected trend. Buy dips if the trend is up. Sell rallies understanding the value if the trend is down. If you’re day trading, preferably use daily and intra-day charts. But in each of the scenarios, let your observations about the longer range chart determine the trend, and then use the shorter term chart for timing to invest smartly.

3. Lows and Highs

Find support and resistance levels of the stocks. That support is usually a previous downside. The best zone to sell a market is near resistance levels. Resistance is usually a previous upside. After a resistance upside has been broken, it will usually provide support on subsequent pullbacks.

The highs and lows in this manner determine the decision to take stock calls. In other words, the old upside becomes the new downside. In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies – the old downside can become the new upside.

This is good to study the industry prospects whose company is launching latest ipo in the market.

4. Timing to Backtrack

Measure percentage retracements in terms of calculating size of retracement with size of uptrend or downtrend. Market corrections up or down usually retrace a major portion of the previous trend. You can measure the corrections doing simple math in an existing trend doing simple percentage calculations. A fifty percent retracement of a prior trend is most commonly done by traders. The maximum retracement is usually two-thirds.

Fibonacci retracements of 38% and 62% are also worth evaluating. During a pullback in an upside trend, therefore, initial buy points are in the 33-38% retracement area.

5. Trend Lines

Regularly practice drawing of trend lines. Trend lines are easily readable and one of the simplest and most insightful charting tools. Upward trend lines are identified along two successive lows. Downside trend lines are shown along two successive peaks. The breaking of trend lines is easily observed and usually signals a change in trend. Industry wise trend lines help a lot in understanding ipo market growth or decline about that particular industry in recent terms.

Long trend line is more insightful and effective, and the more times it has been tested, the more decisive it becomes.