Technical analysis is my weapon of choice I use on the stock market. It helps me to pick stocks and determine moment to open and close my positions.
There are three important rules you must know, if you don’t want to fail as a technician. Knowing these rules, gives you basic understanding how technical analysis works.
The market discounts everything.
This rule says that all information concerning any stock are already included in stocks’ price. All results, data, reports and even gossips. Therefore, there is no sense in taking actions based on these informations.
What is also interesting, it is possible to predict some information that is not yet published.
History tends to repeat itself.
Technical analysis reflects psychological behavior of people. People very often behave in similar way in similar situation. As we can learn from social psychology, this works not only at the stock market.
It is very important to understand relations between price movements and emotions that influence investors (most often fear and greed).
The ability to analyze such behaviors helps us to determine further movements, to see patterns and to exploit them in our favor.
Price moves in trends.
There are three types of trends:
uptrend,
downtrend,
sidetrend.
Each stock follows one of the above trends.
Trend designates general direction of price movements. It is more likely that price would go with the trend than against him.
I think this is the most important rule and assumption of technical analysis.
Remember. Trend is your friend!
March 24th, 2008 at 2:11 pm
[...] Kacper from KacperWrzesniewski.com presents Technical Analysis: Three most important rules you must know.. [...]
March 24th, 2008 at 2:40 pm
[...] Million Dollar Journey hosts 145th Carnival of Personal Finance: The Baby Education Edition. This edition contains one post submitted by me - Technical Analysis: Three most important rules you must know. [...]
March 30th, 2008 at 3:04 am
[...] Kacper from KacperWrzesniewski.com presents Technical Analysis: Three most important rules you must know.. [...]
March 30th, 2008 at 8:59 am
[...] Following the trend is the most important principle of technical analysis. [...]
April 10th, 2008 at 11:34 pm
[...] you can see, using moving average is very easy and effective. It is one of my favorite tools from technical analysis. Please, keep in mind that this technique can also give wrong signals. Of course it happens rarely [...]
April 11th, 2008 at 7:32 am
[...] you can see, using moving average is very easy and effective. It is one of my favorite tools from technical analysis. Please, keep in mind that this technique can also give wrong signals. Of course it happens rarely [...]
April 11th, 2008 at 9:02 pm
[...] Kacper from KacperWrzesniewski.com presents Technical Analysis: Three most important rules you must know.. [...]
April 11th, 2008 at 9:02 pm
[...] Kacper from KacperWrzesniewski.com presents Technical Analysis: Three most important rules you must know.. [...]