Different Trading Methods Learned with a Stock Technical Analysis Course
Never in my life have I seen anything like the plethora of methods which are coming on stream for the use in forecasting commodity prices . There are literally hundreds of techniques and approaches . Only a few will be presented in this chapter briefly.
There are some that are standard and I’ll put an asterisk by those I use personally . Listed in this chapter there are 36 mentioned ways of price forecasting . This doesn’t even include the various great tidbits that can be provided through a P&L charting technical analysis course.
(This author is very happy with P&L charting , for it lets this author on a daily basis and more be able to quantify price action. I don’t know of any other system wherein each day’s specific activity means more than the trend or congestion in the way trading prices are going . The activity of each day by using P&L charting can show the evolution of a congestion or trend, in some cases, in a day. )
However , I’m frustrated by those who believe that their moving average, point and figure, resistance index, volume oscillator, balance volume, weighted moving averages , and who knows what else, – cash, basis , – are the only system which is effective. And, the system they use is the only one that will ever be effective and they never have any real use for seasonals, contrarian opinion, volume, oscillators, momentum indices, indices, other options , and are blinded to the approach of others . ( There . Now I got that out .)
Often these traders do not even use their own systems and to me it seems, to be continually fighting the market . If you assume the trader has gone through a technical analysis course and has a forecasting method plan that puts together various methods and they are combined to help him profit from the market continually, then listening to this trader is a good idea . In the section on planning , the author will show his approaches to the market place and you will be surprised how flexible he is .
In order to analyze commodity price behavior on the market, there are 3 methods .
1. fundamental
2. mechanical
3. technical
FUNDAMENTAL
In some cases the market goes in the opposite direction of the fundamentals due to factors like technical ones. Fundamental traders are interested in the price movements that are long range and need to be prepared to simply wait. Although they may deny it , but there are just too many external factors to be taken into account , like the response that occurs to influences that are fundamental, shown in fluctuations that occur each day. So for analysis, there is now reason to seek them out .
MECHANICAL
The mechanical methods use price and price alone to determine what action to take and the trader doesn’t have to decide on the action. There are three mechanical methods .
1. chart
2. computer summaries
3. moving averages
Going through a technical analysis course will teach that you should faithfully follow the trading rules and usually a mathematical formula is used as its basis to give you the trading time that is right. A mathematical formula is used by the computer, which tells you want to do. One of the great things about using the mechanical method is they can be back checked . Computer based methods are often biased towards trend analysis that is mathematical , using various trading systems, like moving averages . Your computer can become a chart reader and it can formulate and test any and all decision rules .
TECHNICAL
In past decades, much work has been done to get technical tools in place , – all aiming to anticipate futures prices from the statistics of trading , for example, volume, O.I. and price .
There are four broad areas of the technical approach .
1) price charts and their patterns
2) methods of trend following
3) character of market analysis
4) structural theories.
For charting, there are a variety of methods . The following are the most popular :
a. daily high/low/close bar charts
b. point and figure method
c. moving average of closing prices
The lists of approaches taken to technical analysis can be cataloged by these approaches that are technical .
1) board or tape reading
2) price chart analysis – which consists of
a. price trends
b. support and resistance
c. consolidation ( continuation and reversal )
d. price formations and patterns
e. rules of measurement
f. wave theory
3) volume and open interest analysis
4) other different technical indicators which can include :
a. measure of the relative performance
b. studying the periodic price performance
c. opinion survey and contrary opinion
This will be discussed later .