I’m a big chart guy.
Stock Charts are my life when looking at the stock market. And I’ve spent a great deal of time getting to know and understand how analyzing stock charts known as technical analysis works.
And more importantly, I’ve honed my own skills to develop my own proprietary technical analysis that works with the addition of specific fundamental company events to find the best surge stocks for you inside my Traders Daily Direction.
I use technical analysis to identify volume surges that I detail each and every issue with the top stocks that grab my attention. And I use technical analysis to prove out that a stock has a proven record of moving higher than the market using moving averages. And I use money flow analysis that plugs in the buys and sells to further vet each and every stock that I present to you.
And each of these and other tools come together inside my proprietary Surge Stock Indicator (SSI) system to find the best stocks that are set to surge for you in price.
And to get the full rundown on my SSI system – read my guide: The Magic of the SSI that you can download now for free.
And to get the latest on this week’s surge stock picks – Click Here
But to get a further handle on what technical chart analysis is and why it works so well for traders – read on…..
Centuries of work in interpreting and understanding the movement of prices in financial markets brings us to today’s technical analysis.
Marks on paper and calculations by hand, pit traders and runners, have all given way to the speed and efficiency of computers and electronic information networks.
Yet the goals remain the same:
(1) identify the trend as early as possible,
(2) capitalize on it for as long as possible, and
(3) manage the risks along the way.
It is traditional to examine price, volume, and indicator information in charts. To this day, understanding how and why charts are constructed as they are, is critical.
From Charles D. Kirkpatrick II and Julie R. Dahlquist, Technical Analysis: The Complete Resource for Financial Market Technicians, 3rd Edition:
“The art of technical analysis – for it is an art – is to identify trend changes at an early stage and to maintain an investment position until the weight of the evidence indicates that the trend has reversed.”
Technical analysis is based on one major assumption: Freely traded, market prices, in general, travel in trends.
Based on this assumption, traders and investors hope to buy a security at the beginning of an upward trend at a low price, ride the trend, and sell the security when the trend ends at a higher price.
Although this strategy sounds simple, implementing it is exceedingly complex.
Trends of different lengths tend to have the same characteristics.
In other words, a trend in annual data will behave the same as a trend in five-minute data.
Investors must choose which trend is most important for them based on their investment objectives, their personal preferences, and the amount of time they can devote to watching market prices.
One investor might be more concerned about the business cycle trend that occurs over several years.
Another investor might be more concerned about the trend over the next six months.
And a third investor might be most concerned about the intraday trend.
Although traders have investment time horizons that vary greatly, they can use the same basic methods of analyzing trends because of the commonalities that exist among trends of different lengths.
Trends are obvious in hindsight.
But ideally, we would like to spot a new trend at its beginning, buy, then spot its end and sell.
However, this ideal never happens.
Those in search of a method of pinpointing the precise high and low will end up sorely disappointed… and likely broke.
There is always a risk of spotting a trend too late and missing potential profit. Or not identifying when the party is over and holding a stock well past its price peak.
On the other hand, if the analyst thinks the trend has ended before it really has and sells the security prematurely, the analyst has then lost potential profits.
Thus, the technical analyst expends a lot of time and brainpower attempting to spot as early as possible when a trend is beginning and ending.
This is the reason for studying charts, moving averages, oscillators, support and resistance, and all the other techniques.
The fact that market prices trend has been known for thousands of years.
Academics have disputed the idea that markets have a tendency to trend because, if it were true, it would spoil their theoretical models.
But we know these models are flawed.
Efficient markets are a fairy tale.
I was taught the efficient markets hypothesis in college.
Even as an undergrad, I knew the concept didn’t hold water.
Academics cling to the concept, unwilling to accept the enormous amount of evidence against it.
If investment success were truly random, there would be no Warren Buffett… no Paul Tudor Jones… no John Paulson… and no David Tepper.
Traditionalists love to scorn technical analysis as if it were a cult.
But these are merely the ramblings of those incapable of doing it – those who settle for 8-10% a year and comfort themselves with the faulty belief super performance is not possible.
Technical analysis works.
It has worked for more than a hundred years as evidenced by the success of early stock market operators like the great Jesse Livermore.
It was developed through practical experience of real investors trading real markets – not academic models.
And sizable fortunes have been built by those who adhere to its principles.
And the further proof comes with the successes in the surge stocks that you can read the latest on right here on my Watch List.
Another Technical Trade Idea:
I am ramping up my insider stock buying research that is part of my Surge Stock Indicator (SSI). This takes identified buys and then turning to my proprietary technical chart analysis.
I have developed a new product that we’ve just launched here at Traders Agency called Insider Edge. And this is all about one of my common-sense tools that finds stocks with big surges in insiders’ buying their own shares. And in turn, using my chart analysis to find out if the insiders are right about a stock set to surge.
And to get the full rundown on how to profit by buying stocks that insiders are buying right now, you learn more about my Insider Edge at Traders Agency. Click here to watch