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If done properly, teccnical analysis can work up to 80% of the time. Granted, there is no Holy Grail, but if we use the right indicators, we increase our odds of success. Especially if we apply those indicators to well known stocks that may only be down temporarily.
When it comes to trading, one of the best ways to tell what’s happening is by paying attention to the flow of money in and out of a stock.
Surely, none of us want to buy a stock if money is flowing out, right?
Early October 2018 was quite painful for the average investor. Today, we are seeing the same problem with the Covid-9 pandemic.
The major indices fell out of the sky. The tech-heavy NASDAQ fell from 8,100 to 7,300. The S&P 500 dropped from 2,925 to 2,725.
When it comes to technical analysis, moving averages are essential.
For example, for more than 20 years, I’ve relied on two specifically – the 50-day and the 200-day simply moving average. Not only am I looking for crossovers for golden and death crosses, I want to see if a stock is holding its own above them.
To the average trader, candlestick patterns are a bunch of crosses and odd shapes with bizarre names, like the three black crows, or the abandoned baby bottom.
But as odd as they may sound, they can provide powerful insight into direction.
If you pull a rubber band too far, too fast, what happens?
It snaps back, right? The same thing happens with stocks, indexes, and currencies. If they’re pulled too far in one direction, eventually they’ll snap back and revert to back to the mean. In fact, we see it happen all the time.