Technical Analysis for Long Term Trading

May 26, 2012

Technical analysis is more or less associated with short term trading i.e time frame ranging from intraday to few weeks. It is a misconception that it is obsolete for the long term investor. People who basically plough their hard earned money into share market for long term are not in touch with the market movements and thus put mostly by what is advised in the news channels and friends and bear the harsh consequences incase the market nosedives. All the hard earned money shrinks just because of following advice blindly and paucity of research.

There are many technical indicators ranging from simple moving average to RSI and MACD. Sticking to moving average indicator one has to see 200 DMA(daily moving average) at the least incase he is a marathon investor . The idea behind 200 DMA is that it is easily available everywhere.

For example if a stock or index breaks from down to up and stays there for few days, it suggests that there is long term bullishness and the tendency of the stock or index is in upward direction and at a faster pace. Similarly if the price of the stock crosses or breaks the 200 DMA from up to down and stays there for few days it suggests that there is long term bearishness set in for sometime and it is there to stay for the coming months. This indicator can be used for any index/ stock/ commodity as they trade similarly on the technical front.

Below is an example of $-re
We can see that in apr 08 and aug 11 DMA is broken from down to up and movement turns bullish ahead. Vice-versa is the case for bearishness represented in june 06. [Photo courtesy is capitalmind.in]

Though technical indicators are useful, studying them and picking stocks only on that basis wont be a wise idea since the time frame is long , fundamental changes are bound to occur in microeconomic basis and macroeconomic basis. These are still reliable since they factor in all the news in the given time frame and wont change drastically overnight. Another advantage of moving average indicator is its simplicity and easy to comprehend nature. Thus a healthy use of DMA will help in fetching money in the months ahead. It can used for any item traded in market and acts like universal fact.

Editor: Pakshaal

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