Make Money in Stocks: How Day Traders Approach Their Work
Discover stock trading with Technical Analysis. Find out where the "herd" is heading and how you could profit from that information.
Important words:
Home Based Company; Stocks; Investment; Money
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You have definitely heard of "day traders" and how they sit at home generating large sums of money without any manager, clients, or need to engage anyone. How therefore do they do it? Although they employ several methods, in this essay we will focus on one—probably the most often used—technical analysis.
The author is not a financial counselor, hence this post is not meant to direct or advise you in your investing strategies before we begin clarifying. This page only serves to outline some of the author's observations—real or imagined.
People, particularly with regard to publicly available information, often react at least in some capacity as they see others doing. People will be more cautious of maintaining the stock once it flips around and goes back up if they keep buying shares until it reaches a particular price and then stop (for whatever reason). We term this a "resistance" line. Resistance lines are violated often, of course, but patterns do seem to show in stock pricing records.
A technical analyzer's task is to be able to identify circumstances in which the likelihood is that a given stock will move either up or down. Technical analysts notice certain trends and buy and sell shares depending on forecasts derived from those trends. Of course none one can precisely forecast what stock prices will do 100% of the time; day traders typically aim to keep the odds in their favor and that is how they make money.
You might acquire some if you have justifiable (even minor) belief that a given stock would rise. You decide how far to let it drop before you sell as you understand it might go down somewhat initially. If within that margin it turns and rises you can ride it all the way up to the point where *you expect it* to start to fall (a resistance line). You will profit from your total investments if you keep doing this—lose a little or win a lot—again and over and find money just 50% of the time. The secret is to be constant. Every time it falls too far, get out; never ride it above where you expect it to turn; you could find yourself caught in an inverted spike and lose a lot of real fast.
Either purchase a stock analyis program or visit a website where you may examine stock trends to find patterns. We prefer to visit http://www.bigcharts.com. Alright, then what are the trends Technical Analysists search for?
'Short' a stock is to "sell" it at a designated price (without having bought it) and subsequently "buy it back" after it declines below that price. Brokers let you handle this; you never really wind up having the shares at the end. You essentially "sort of" buy stocks hoping for a declining rather than an increasing outcome.
The most often occurring ones are listed here:
Stock rises and falls under Head & Shoulders. It rises but farther—perhaps one-third to one-half more—then falls back to the same line. It rises once more, but this time it sinks once more from the same spot as last time. This design resembles head and shoulders somewhat vaguely. The price should keep declining after it falls below the "neckline." Here the investor would short the stock. An inverted pattern also shows this trend rather regularly. In such circumstances a long (purchase the stock) would be suggested.
Stock declines and then rises to create a pattern that resembles a cup quite vaguely. It then slightly declines then rises to create what approximates the handle of the cup (about half of the cup bottom). Right back at the top of the cup, the stock reached and subsequently dropped two points on a line. The moment of execution comes when the stock reaches that level three times. The stock is projected to surge to the next higher resistance point—above the top of the cup.
Triangle or Wedge: The stock rises and falls then back up then down where the top and/or bottom price minimize regularly such that the space between the top and bottom is reduced each time. Drawing a line connecting the points of the top price then another line connecting the points of the lowest price would result in a triangle. Once the price "breaks out" from the triangle, it is likely to keep moving in the same direction. The Flag and the Pennant are names for quite comparable designs.
Double Top: The stock rises , falls to a point and subsequently rises once again. It rotates once more when it reaches the price it lastingly changed. Though all the lines are diagonal, the pattern appears to be an M. It should keep down if it breaks below the place at which it bottomed out—in the middle of the M. There is a brief indicated here A W inverted form of this pattern would signal a long (buy).
Many more patterns are identifiable, and reading them requires sophisticated artistic ability. This page is not meant to teach Technical Analysis-based stock buying and selling techniques. Its sole purpose is to introduce the topic and maybe motivate more study.
Technical analysis allows you to learn a lot about stock pattern behavior. Search the Internet's search engines for "stocks "Technical Analysis" patterns and you will come across many Websites outlining it.
Two works on the matter are recommended by this author: "Technical Analysis Explained" by Martin J. Pring and "The Master Swing Trader" by Alan S. Farley. Visit Alan Farley's Website at http://www.hardrightedge.com to obtain free stock picks by him and his associates.
