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Strategies & Market Trends : Technical Analysis - Beginners -- Ignore unavailable to you. Want to Upgrade?

To: shasta23 who wrote (7129)	11/29/1997 7:27:00 PM
From: LWolf	Respond to of 12039

Robert & Stefan -- I too an following, watching, reading, learning. When I hear about a stock on the thread or IBD I go back and reveiw the charts and the indicators to see what they are showing me. A book that I recently started reading is John Murphy's book; The Visual Investor. What I like is that in very simple terms he shows you the IMPACT of what the indicators are showing. Why they are significant and when. Not sophisticated, but allows you to begin understaning the trend signals. For now I've taken the attitude of buying stocks on paper; until I'm more confident in my TA readings. The successful purchases I've made in the past have been on great companies with outstanding management, strong fundamentals and industries, plus lots of analysts recommendations. It's a good combination that's paid off so far; but it takes a while. A lot seems to come back around to one's timeframes and goals for success. I've love to get really good at the charts and the signals, so I could quite my day job! L. Wolf

To: shasta23 who wrote (7129)	11/30/1997 12:17:00 PM
From: Robert Graham	Read Replies (3) \| Respond to of 12039

Depending on your trading approach, a technician really does not need a whole suite of indicators in order to make money. The basics can work. This means for instance MAs, trend lines, and S&Rs. Matter of fact, I have met someone here at SI that successfully trades off of S&R lines of a stock. What is important here is to match the stocks you select up with the system you are using. I think the successful stock newsletter writer Henry Brookins gave this as part of his presentation at the last TAOB meeting. Am I right here, Richard? I think if a technician does not understand the basics of TA, they are at a substantial disadvantage. And I do not mean "understanding" to be reading a book on MAs, and say: "I understand this! X + Y = Z! This is simple!". It is one thing to understand the concept, another to see it in action and implement a sucessful trading strategy or system around it, and yet another to commit money to your strategy or system. IMO the tehcnician has very important knowledge and experience to be gained in each step. Then you may move on to a simple OB/OS oscillator, like Stochastics, and see how the price of the stock tends to respond to its Stochastics indicator. Initially just work with the concept of overbought and oversold without getting too fancy with something like negative divergences. And then take a step back and integrate what you see from trend lines and MAs with that of the Stochastics. You will start seeing more interesting and worthwhile relationships. Oh, and I cannot forget to mention the importance of the relationship of volume with that of price. This is particularily useful around points of support and resistance like S&R lines. Then depending on the type of trading or investing you do, you can move onto Bollinger Bands, for instance. Make it an exerrsize to note the diffences between the Bollinger Band, and something like the MA and OB/OS indicator in how the price of the stock appears to respond to it. I find that many do not understand BBs. They simply get it wrong. And it is actually a fairly simple concept to understand and utilize. This I think is because if the aspiring technician does not know in real-world terms the basic concepts of MAs and OB/OS indicators, how can they get BBs right? BBs are used alot by short term traders. Many option players use them, both option traders and CC writers. The CC writers use BBs as part of their toolkit to take advantage of the "dips" in a stock to buy back the option and either write another option or wait until the stock moves back up. This maximizes their profits with writing CCs. And the combination of indicators like an OB/OS indicator and the BBs provide additional value to the technician. There are some CC writers that utilize this approach where they see the likelihood of a stock price moving past its BB depends on how OB or OS the stock is. IMO a BB is really a cross between something like a key MA or trendline for a stock and an OB/OS indicator in how a stock price actually functions in relationship to this indicator. It does not precisely behave like an OB/OS indicator, or an MA or "dynamic" trend channel. Some accurately say it functions more as an OB/OS indicator. But IMO it actually has qualities in common with both. But how is a technician able to distinguish this behavior of the BB indicator when they really do not understand in working terms how prices behave around MAs and how the price behaves in relationship to a OB/OS indicator? So I think you are heading in the right direction. Take you time to get it right, particularily the basics. Many want to be technicians and "stock predictors" ASAP, like in a couple weeks. This is nonsense. Some competency may be developed inside of a several months, but TA is actually a life long learning process. You know how you can tell the newbie technician from the experienced one? Here are some indentifying characteristics. The newbie sees TA and what it tells them in "black and white" and looks at TA as "predicting" the stocks future price. The experienced technician asseses charts and indicators in terms of probabilities. Decisions come out of a careful consideration of the probabilities, which comes strictly from experience. And if that newbie does not really understand how a stock price behaves around a significant MA or S&R, even though they can recite the definition of these concepts, what chance do they have in learning anything form their experiences? This underdeveloped sense of what each indicator is about and how it works with respect to the price of the stock shows up in other ways. This is when you see newcomers to TA giving their list of lets say one or two dozen indicators, gives a "yeh" or "ney" vote to each, totals up the votes, and makes a decision based on that. This is another approach that will lead to the problematic use of TA. Each indicator is telling the technician something specific about the stock. Each indicator is not just another line on a chart, and indicators cannot be completely described by its simplified textbook definition. If you do not provide a context to interpet each indicator in, and you cannot step back and place the indicator in the overall context of the big picture, then those indicators are doing you not much good. Now there is nothing "wrong" with the above two approaches that I find relative newcomers take to TA. However, after a period of time goes by utilizing these approaches, I think they will find that something is just not working for them. Most at this point give up and move onto something else. Others may take a closer look at the indicators they utilize and what they are doing with them. They may find for instance that there are indicators that work better with the price action of some stocks than other types of stocks. This IMO will lead to more sucessful use of TA for investing and trading purposes. Martin Pring's book "Market Momentum" can help in a technician's more indepth and advanced study of indicators and their use. John Murphy's "The Visual Investor" is also a good book to work on the basics and it also goes one step further in helping the reader understand an indicator's actual (not theoretical) use with stock prices. Bob Graham