For people looking to learn stock market investing techniques, a great place to start is through gaining an understanding of technical analysis tools. Although technical analysis is never enough determine whether to execute a trade, it can provide statistical data on entry and exit points.
Although there are literally hundreds of different technical analysis measurements, the three discussed here are among the most reliable formation that investors will cross. It makes the most sense to discover them as soon as possible when one starts to learn stock market investing techniques:
Head and Shoulders. Considered one of the most reliable technical indicators, this type of formation gives investors an extremely reliable indication as to where the stock is headed — up or down — over a specified period — short, medium, and long-term. A head-and-shoulders formation has three sharp points. In a bottom formation, there are three low points with the second point (the head) being lower than the first and third points. This pattern gives a strong and reliable indication to buy the stock. As well, it is easy to spot, particularly for investors who are just starting to learn stock market investing techniques. In terms of volume, the first point (the left shoulder) will come with higher volume than the last point (the right shoulder).
Gaps. Perhaps the easiest technical indicator to identify, a gap happens when a stock’s low for one day is higher than the high of the previous. People who are starting to learn stock market investing techniques will be automatically drawn to these patterns, although trading on such gaps can pose substantial risk, particularly when beginning to learn stock market investing techniques. It should be noted that gaps usually provide resistance or support levels, so when a stock trend crosses through a previously formed gap, it signal a strong price movement to come.
Bollinger Bands. Unlike the previous patterns, Bollinger Bands are oscillators that measure the volatility of a stock price vis-a-vis its moving average. In terms of the Bollinger Bands, investor who want to learn stock market investing techniques should realize that volatility here means two or three standard deviations from the mean. So when a stock crosses an upper band, a sell signal is triggered (the opposite is true of a lower band). A requirement for a cross-over is volatility, and the greater the volatility, the greater the reliability of the signal.
For investors looking to learn about stock market investing techniques, much of the information on the topic of technical analysis can be found on-line. Likewise, theoretical textbooks can become costly. As an alternative, investors can purchase trading software that makes recommendations based on the very same data that technical analysts use when making their recommendations.
Chris Fitch is the founder of the Mutual Fund Site, a website that helps people with their Investment Strategy.