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Investing 105

Fundamental on stock analysis - P/E Ratios and other valuations techniques in real world

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Fikri Sooudin
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33 views3 pages

Investing 105

Fundamental on stock analysis - P/E Ratios and other valuations techniques in real world

Uploaded by

Fikri Sooudin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Technical analysis involves studying historical price and volume data to forecast future price

movements of a stock or other financial asset. Here’s a step-by-step guide to getting started
with technical analysis:

1. Understand the Basics of Technical Analysis

a. Price Charts:

• Line Charts: Simple charts showing closing prices over time.


• Bar Charts: Charts showing opening, high, low, and closing prices for each period.
• Candlestick Charts: Similar to bar charts but with more visual information about price
movements.

b. Time Frames:

• Choose appropriate time frames based on your trading strategy (e.g., daily, weekly,
monthly).

2. Learn Key Concepts and Indicators

a. Trends:

• Uptrend: Series of higher highs and higher lows.


• Downtrend: Series of lower highs and lower lows.
• Sideways/Range-Bound: Prices move within a horizontal range.

b. Support and Resistance:

• Support: Price level where a downtrend can pause due to buying interest.
• Resistance: Price level where an uptrend can pause due to selling interest.

c. Moving Averages:

• Simple Moving Average (SMA): Average price over a specific period.


• Exponential Moving Average (EMA): Puts more weight on recent prices.

d. Momentum Indicators:

• Relative Strength Index (RSI): Measures speed and change of price movements. RSI
above 70 is overbought, below 30 is oversold.
• Moving Average Convergence Divergence (MACD): Shows the relationship
between two EMAs.

e. Volume Indicators:

• Volume: Number of shares traded. Increased volume often confirms a trend.


• On-Balance Volume (OBV): Measures buying and selling pressure.

3. Analyze Price Patterns


a. Continuation Patterns:

• Triangles: Symmetrical, ascending, and descending triangles.


• Flags and Pennants: Small rectangles (flags) or small triangles (pennants) following
a sharp movement.

b. Reversal Patterns:

• Head and Shoulders: Indicates a reversal from an uptrend to a downtrend or vice


versa.
• Double Tops and Bottoms: Two peaks or troughs at roughly the same level, indicating
a potential reversal.

4. Use Technical Analysis Tools

a. Charting Software:

• Use platforms like TradingView, MetaTrader, ThinkorSwim, or other brokerage-


provided tools.

b. Indicators and Overlays:

• Apply indicators (RSI, MACD) and overlays (moving averages) to your charts.

5. Develop a Trading Plan

a. Entry and Exit Points:

• Determine your buy and sell points based on technical signals.

b. Risk Management:

• Set stop-loss orders to limit potential losses.


• Determine position size based on risk tolerance.

c. Backtesting:

• Test your strategy on historical data to evaluate its effectiveness.

6. Monitor and Adjust Your Strategy

• Continuously monitor your trades and adjust your strategy based on performance and
changing market conditions.

Example of Technical Analysis

Let’s say you’re analyzing a stock using TradingView:

1. Open a Candlestick Chart:


o Select the stock you want to analyze and choose a candlestick chart.
2. Identify the Trend:
o Look for patterns of higher highs and higher lows (uptrend) or lower highs and
lower lows (downtrend).
3. Draw Support and Resistance Lines:
o Identify price levels where the stock has historically had difficulty moving
above (resistance) or below (support).
4. Apply Moving Averages:
o Add a 50-day SMA and a 200-day SMA to your chart.
o Look for crossovers (e.g., the 50-day SMA crossing above the 200-day SMA
indicates a potential buy signal).
5. Use RSI and MACD:
o Add RSI and MACD to your chart.
o Look for RSI readings above 70 (overbought) or below 30 (oversold).
o Observe MACD line crossing above or below the signal line as potential buy or
sell signals.
6. Analyze Volume:
o Check if volume supports the trend. High volume on upward movements
indicates strong buying interest.

Practical Example

Suppose you’re looking at Stock XYZ:

1. Candlestick Chart:
o You observe an uptrend with higher highs and higher lows.
2. Support and Resistance:
o Identify resistance at $50 and support at $45.
3. Moving Averages:
o The 50-day SMA recently crossed above the 200-day SMA, indicating a bullish
signal.
4. RSI and MACD:
o RSI is currently at 65, indicating the stock is not yet overbought.
o MACD line is above the signal line, suggesting upward momentum.
5. Volume:
o Volume has been increasing on up days, confirming buying interest.

Based on this analysis, you might decide to buy Stock XYZ with a target price of $50 and a
stop-loss at $44 to manage your risk.

Conclusion

Technical analysis is a valuable tool for making informed trading decisions. By combining
various indicators, patterns, and analytical tools, you can develop a comprehensive trading
strategy. Remember to continuously educate yourself, practice with demo accounts, and refine
your strategy based on real-world performance and evolving market conditions.

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