Different Trading Methods Learned with a Stock Technical Analysis Course
Never before has something been seen like all these various methods that are appearing for use in price forecasting for commodities. There are many approaches and techniques . Only a few will be presented in this chapter briefly.
Some are conservative and I’ll put an asterisk by those I use personally . In this chapter alone there are approximately thirty-six ways and means of forecasting prices . This doesn’t even include all the excellent tidbits that can be found with a technical analysis course.
( I’m quite thrilled with P&L charting, because it allows the ability on a daily and intra day basis to quantify price action . I know of no other system wherein each day’s specific activity means more than the trend or congestion in which the prices are being traded. Each day’s activity through the use of P&L charting portrays the evolution of a trend or congestion , in some cases, in a day. )
However , this author is most irritated by those traders who are convinced that their weighted moving averages, volume oscillator, resistance index, balance volume, and who knows what all else , – cash, basis , – are the only system which is effective. And, the one they happen to use is the only effective one and they never have any real use for volume, open interest, seasonals, fundamentals, contrarian opinion, wave theories, point and figure, moving averages, oscillators, chart patterns, momentum indices, whatever , and are blinded to the approach of others . ( Yes. I got that off my chest .)
Often these traders don’t even use a system that is theirs and at least to me it seems , to be continually fighting the market . Assuming they have taken a technical analysis course and they have a plan for trading that combines various price forecasting methods and they are combined to help him profit from the market continually, then listening to this trader is a good idea . In the section below that is on planning, the author will show his approaches to the market place and the flexibility may surprise you .
You’ll find 3 basic methods used to help analyze commodity price behavior on the market.
1. fundamental
2. mechanical
3. technical
FUNDAMENTAL
In some cases the market ends up going opposite of considerations that are fundamental due to factors like technical ones. The fundamental trader is interested in long range price movements and have to be ready to wait . Fundamental traders may deny this, but there are just too many external factors to be taken into account , like fundamental influences and their natural response , shown in fluctuations that occur each day. So you don’t need to seek them out and analyze them.
MECHANICAL
Methods that are mechanical use price and price alone to decide on the action they should use and the action doesn’t require a trader’s decision . There are three different methods.
1. chart
2. computer summaries
3. moving averages
Going through a technical analysis course will teach these rigid trading rules to be followed faithfully and in most cases it’s based on a formula that is mathematical to predict the right time to trade . A mathematical formula is used by the computer, which tells you want to do. One of the great things about using the mechanical method is that back checking can be done. Computer oriented methods are often biased towards trend analysis that is mathematical , using various trading systems, like moving averages . Your computer can become a chart reader and all of the decision rules can be both formulated as well as tested.
TECHNICAL
Over the past years , much work has been done to give means of tools that are technical, – all trying to use trading statistics to anticipate the futures prices, i.e. O.I., price, and volume.
There are four broad areas of the technical approach .
1) patterns on price charts
2) methods that follow trends
3) character of market analysis
4) structural theories.
There are many different methods for charting . The following are the most popular :
a. high/low/close bar charts daily
b. the method of point and figure
c. closing prices and their moving average
Technical analysis lists of various approaches can be put on the list by these technical approaches .
1) tape or board reading
2) analysis of price charts – which consists of
a. price trends
b. support and resistance
c. consolidation ( continuation and reversal )
d. price formations and patterns
e. measurement rules
f. wave theory
3) volume and open interest analysis
4) other technical indicators including the following:
a. measures of relative performance
b. study of periodic price performance
c. study of opinion and contrary opinion
There will be more of this later .
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