Stock Trading Based on Technical Analysis
Stock trading, otherwise known as charting or day trading, relies on charting (graphing) the share price and volume of sales in different ways and looking for patterns of behavior of buyers and sellers in the charts. A raft of other indicators and oscillators have been promoted that purport to provide an indication of future price movements that relate more to the stock market behavior rather than to company activity. This strategy that uses indicators and charts of various kinds to inform buying and selling decisions is referred to as technical analysis. Shares are bought and sold usually on short (commonly daily or less to weekly) time frames.So price fluctuations on the stock of interest require constant attention. As buying and selling decisions are usually completely unrelated to the underlying fundamentals of the company in question, traders speculate on the stock price rising and on being able to get out quickly if it doesn’t. The activity does nothing to support the ongoing longer-term activities of productive enterprises and hence the economy in general. There is a need for constant attention to the market. Also, because of the large number of trades entered into, record keeping becomes a major (time) concern, and presumably an expense if using an accountant to prepare your tax returns. It needs persistence to stick with the day-to-day decision making required. But there are a stack of trading advisers offering winning trading strategies. This ensures a steady flow of new recruits into the activity as others burn out. Unless you can adhere to a strict trading strategy that lets your profits run and controls your losses, chances of success are limited. Some people are attracted to the gambling nature of trading for the short-term gratification that it provides. Value investors are more attracted to delayed gratification. For some (most?) stock traders, the potential for short-term gains provides an opportunity for a second cash stream, or an alternative income to a regular job. There are plenty of people out there willing to offer advice on how to trade stock and provide their own (winning?) strategy. Most stock market advertising relates to stock trading basics. And it is commonly promoted as a fast money maker. Because it attracts a lot of attention and has a certain excitement associated with it because of its short-term nature, I see it as one of the top gambling strategies. This is in contrast to long term value investing which does not provide immediate income, but which requires a buy-and-hold strategy with longer-term commitment of funds and more certain results. The big money is made by sitting, not trading! To Conclude The use of stock market charts does provide a quick overview of historical price movements. But does it offer anything else? Whether you believe stock charting can provide insights into the future price movements of a stock relates more to your preference for gambling than for investing. Day trading stocks can be viewed as being at one end of the gambling - investing continuum. From Stock Trading to Best Investment Strategies
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