Stock Trading 101: Lesson 2

What is technical analysis? Essentially, it is chart reading. It is the science or art of recognizing chart patterns and interpreting them to make buying and selling timing decisions and implementing a trading plan. Technical Analysis can help not only make your decisions but also make them more precise and disciplined. Many Technical Analysts believe that everything that you need to know about a stock can be found by looking at the charts.
Technical Analysis comes in two forms: Price patterns and Indicators

Price Patterns-Simply said these are visible patterns of what is happening to the price of the security.

Indicators-These are mathematical algorithms that take all aspects of the price movement, including volume, and are put together to form all kinds of ratios and analysis by which future price movement may be guesstimated.


There are 3 ways to view price patterns. Price patterns are simply the patterns of a security’s price movements for a know timescale and the 3 main ways of viewing these price actions for any period of time are:
Simple Line Chart

line chart

With Simple line charts, the line can be charted in three ways, at the average between the high and low, at the opening price, and at the closing price for each period of time.

A more useful chart would be to see the daily prices represented in such a way where we can see the high, low, open, and close for each day.

Bar Chart

bar chart

Notice how each day is represented by a vertical bar. Also notice how each bar has a small horizontal line to the left and one to the right.

bar explained

bar2.png (5.86 KiB) Viewed 60 times

These lines tells us the opening and closing prices of the security for each day. The tops and bottoms of each vertical line represent the high and low prices on that particular day.

A much clearer way of describing price action for each period is by using the japanese candlestick.
Japanese Candlestick Chart

candlestick chart with volume

Here is how the candle stick work
The candle stick will have the body of the candle and may or may not have shadows(vertical lines above and below the candle's body)
The candle body represents the opening and the closing price of that period.
the candle shadow represents the high(top vertical line) and low(bottom vertical line) price of that period

candlestick explained

Up candlestick(Green)
-Green Body.
-Closing price will be higher than the opening price.

Down candlestick(Red)
-Red body.
-Closing price will be lower than the opening price.

After knowing your charts, we will continue with the next lesson wherein we will be discussing basic chart patterns.

Originally posted by Ronald Manipol of http://estockmarketforum.com trading forum on steroids

Stock Trading 101: Lesson 1

People will often ask, "How do you get started with trading? How much money do I need to start trading? Where and how do you learn how to trade? And so on.

The markets will let anyone start trading so long the individual have a funded account. With that said, you must invest time in your trading education before you jump into the water. So what to do first?

Choose an online brokerage and really get familiar with the trading software the broker offers-
There are different brokers out there to choose from: Schwab, E*trade, Scottrade, Interactive Brokers, etc. For folks who are just starting, I really like E*trade. You can open an account for a minimum of $500 but most traders will say a good amount to get started is around $5000-$10000. You should take your time to learn the software, either through their online tutorials or through their customer assistance hotline. There are other more advance software available out there for a fee but there really is no need to jump on those at this moment. The trading platform provided by your chosen broker should be more than enough to give you all the tools you need to be a successful trader. Also, there are free services galore in the trading world. They will let you download their basic services without paying hoping you will be willing to pay for the upgrade. But in most cases you will have all the information you need to trade the markets without having to pay for such upgrades.
Stockcharts.com is one of those free software sites you’d want to check out first. They offer an excellent web based technical charting service that you can use for free. The site offers 20-minute delayed charts with a wide variety of technical indicators, stock scans to find setups, sector and market breadth analysis and so much more. And of course with the upgrade you will have access to real time data. Just a reminder, real time quotes should be available from your broker.

Before we get to the nuts and bolts of how you can actually begin trading, we first need to discuss what I feel the most important element of all trading which is technical analysis.
There are two forms of analysis, fundamental analysis, and technical analysis. (We will further discuss each types of analysis more in depth later on the next lessons) It now begs the question, “What about the fundamentals if you say technical analysis is the most important and do you even look at the fundamentals?” The answer is yes, fundamentals are looked at to see if the stock has earnings and or how much debt the company is carrying. The company reports will often tell you which stock to trade but will never tell you when and where to get in and out of a position. By the time the company reports gets updated the price move will have already taken place. That is why we will probably put more emphasis with technical analysis over fundamentals. In lesson 2 we will talk more about technical analysis and stock selections. Have fun!

Originally posted by Ronald Manipol of http://estockmarketforum.com trading forum on steroids