Wednesday, December 23, 2009

Technical Analysis for everyone!!!

I have received many requests from readers who would like to learn more about technical analysis. There are many books to read on this subject. I read John Murphy's Technical Analysis of the Financial Markets many years ago, which is an excellent comprehensive introduction to this subject. Recently, I read Martin Pring's Introduction to Technical Analysis, which is great for a beginner or someone who wants to refresh his memory on the subject.

For those who like to slowly get into this subject, you may like to check out Stockcharts.com's series on this subject which is appropriately called TECHNICAL ANALYSIS 101. These articles will give you the "big picture" behind the charts. Even if you are an "old hand", these articles will help ensure you haven't "strayed too far" from the basics.

In the part 1, you would be introduced to Technical Analysis. To wit:
Technical analysis is the study of price and volume changes over time. Technical analysis usually involves the use of financial charts to help study these changes. Any person who analyzes financial charts can be called a Technical Analyst.

Despite being surrounded with data, charts, raw numbers, mathematical formulas, etc., technical analysts are really studying human behavior - specifically the behavior of crowds with respect to fear and greed. All of the investors that have any kind of interest in a particular stock can be considered to be "the market" for that particular stock and the emotional state of those investors is what determines the price for that stock. If more investors feel the stock will rise, it will! If more feel that the stock will fall, then fall it will. Thus, a stock's price change over time is the most accurate record of the emotional state - the fear and the greed - of the market for that stock and thus, technical analysis is, at its core, a study of crowd behavior.

For the entire series, go here.
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5 comments:

  1. East Point TradingMonday, December 28, 2009 10:12:00 AM

    Hi Alex Lu,

    I'm Foo, may you help me how to analysis PBBANK chart? I invest in share market mostly base on technical chart analysis but now PBBANK chart really puzzle me.

    Thank for the tips about this book, it really help a lot for me to get a good book about Technical chart analysis.

    ReplyDelete
  2. Alex LuMonday, December 28, 2009 11:30:00 AM

    Hi Durian Edge,

    PBBank is a good fundamental stock. However, it is looking a tad toppish & could be due for some short-term correction. It has been pushing against the strong horizontal resistance of RM11.00 for the past 1 1/2 month. An upside break above RM11.00 may send the share price to the all-time high of RM12.00 recorded in May 2008. On the other hand, a correction now may send the stock to RM10.00-10.50.

    On the medium to longer-term (say, over the next 6-12 months), I think PBBank may make a new all-time. My target is RM13-15.00.

    ReplyDelete
  3. East Point TradingMonday, December 28, 2009 11:47:00 AM

    Hi Alex Lu,

    Thanks for your reply, it really help.

    ReplyDelete
  4. JRMonday, December 28, 2009 12:36:00 PM

    Hi Alex,

    Since TA is a study of crowd behavior,how does the smart money or pro's differentiate from the the rest of the crowd?

    They always act in a contrary manner than the rest of the investors and make profit.

    Appreciate your feedback.

    Thank you.

    ReplyDelete
  5. Alex LuMonday, December 28, 2009 4:22:00 PM

    Hi JR,

    I don't use the Smart Money Flow Index mainly because it is not available in Tradesignum nor in Quickcharts.

    In US markets, the Smart Money Flow Index is used quite widely. There is another indicator that US investors monitor and that's the Insiders' Buy/Sell Ratio which tracks buying & selling carried out by the people who manage the company. A brief explanation of these 2 indicators are via the links below.

    http://www.wallstreetcourier.com/technician/timing-indicators/smart-money-indicator.htm

    http://www.sentimentrader.com/subscriber/charts/WEEKLY/INSIDER_SCORE.htm

    ReplyDelete