Stock Market Technical Analysis

June 26, 2010

In finance, technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume.

More and more new investors are coming to the market by diving into trading mainly focusing on technical analysis without paying attentions to the fundamentals. This is not a bad thing and I do not want to state that all of them are wrong. However, I consider that before starting stock market trading based on the trading signals generated by technical analysis results, the one should know what he/she can expect from the technical analysis.

First of all, technical analysis is not an exact since and none of technical indicators would guarantee that chosen trading vehicle will perform in desirable manner.

If you decided to use technical analysis as a foundation of your trading you should know that this is not an easy task to analyze the stock market. If it would be easy then everyone would be a winner. If somebody made $10,000 on the market that mean that somebody (or several traders) lost those $10,000. Only in pyramid business and bubble market number of winners exceeds the number of losers. Yet, you know what happened after - pyramids and bubbles always, sooner or later, collapse and in the end winning/losing balance is restored. The art of technical analysis is to be better than the other general population of traders.

If you just came to the market you should not expect that technical analysis or some magic technical indicator will make you rich in short period of time. As a rule those who came to the stock market with the purpose of become rich fast end up with empty pockets. If you have this idea in your head, then you are a gambler and it is better for you and for your budged if you go to a Las Vegas - at least there you will have more chances to win.

No matter how professional you feel in technical analysis, if you are novice trader be prepared to lose everything you decided to allocate for trading. If you have never traded before, it is a bad idea to take all your savings into your trading. If you only starting a trading use the same principle majority of smart people use when they go to Las Vegas - dedicate for trading the amount of money that you are not afraid to lose. Prepare yourself to the fact that most likely you will lose them. As a rule when people may take for instance $1000 with a thought that they are going to have just fun and most likely they will lose this money in exchange for fun. If you go to Las Vegas with other purpose then you are a gambler and you should stay home.

The same is when you do the first step on the stock market. Take $1000 or more (whatever you are not afraid to lose) with a thought that most likely you will lose these money, yet in exchange you will gain an experience and knowledge of trading. You will find out what a trader feels when he/she in the losing position, what does greedy buying and panic selling mean, why a trader expects to the last moment that the market may reverse in his/her favor, how once profitable position can became a loss because of greed, etc. If after that you are still confident that you want to go into real trading battle and you understand that technical analysis is not as easy and simple as it looks like, then welcome to the real world of hard work.

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