Technical Stock Analysis
When selecting stocks, fundamental analysis is important, but there’s more to it than that. Stocks trade based on what the future holds (or is expected to hold), not on last quarter’s financial results. A stock’s share price reflects the future prospects of and expectations for the company.
But stocks also have memories. The stock market is simply a collection of investors who buy and sell stocks. These investors remember a stock’s past, which influences their buying and selling behavior.
This is where the technical analysis of stock trends comes into play. It can be a powerful took to identify trend reversals and entry and exit points. The best way to analyze the trading pattern of a stock is to look at its chart. We wouldn’t recommend a stock in any of our newsletters without analyzing its chart first!
As you read Cabot newsletters and listen to investing news, you will probably hear terms like ‘head-and-shoulders pattern,’ ‘trendline,’ ‘support and resistance,’ ‘double top’ or ‘double bottom,’ “triangle,’ and ‘gap.’
Understanding these basic formations and how to read stock charts will make you a better, more profitable investor. Timing is everything, and even a basic understanding of technical analysis will greatly improve the timing of your entry and exit points. And that can be the difference between a successful and a failed investment.
No technical indicator or system is perfect. There will be times when the signal that is given by the charts turns out to be wrong. But in most cases, when technical stock analysis leads you to a certain conclusion, the stock will behave in a way that is similar to what would be expected.
Technical Stock Analysis terms you need to know:
Large increases in volume are your first clue that institutional investors are jumping onboard.
Here are four trading volume indicators to keep in mind when you’re buying or selling a stock.
When you see tight trading in a volatile growth stock after a big run-up, it's almost always a bullish sign.
Support is a price at which buyers step in and arrest a decline and resistance is the inverse of support.
Gaps occur when a stock begins a new trading day at a price that’s vastly different from the previous day’s closing price.
Trendlines help you determine the prevailing trend of a specific stock or the general market.
Triangles usually occur when a stock gets ahead of itself and temporary consolidation is necessary.
The "head-&-shoulders" pattern is one of the most common and reliable of all the reversal patterns.
Mike Cintolo suggests looking at just four chart readings regularly.
A double top occurs when a stock attempts to break out above a recent peak but fails.
Mike Cintolo uses three stocks' charts to illustrate how you can improve your selling.