Technical Analysis for Dummies
There’s a car in front of you and you are trying to determine where it’s going, just like how we look at price and volume to predict future movement.
If you look at the diagram above, you’ll see an intersection. Now, only when the car reaches the intersection do we have the chance of figuring out the most likely direction the car will go (similar to when we first look at the chart of a stock).
When the car reaches the intersection, it can do several things:
1) Stop at the stop sign and wait.
2) Stop and go straight.
3) Stop and turn right.
4) Stop and turn left.
5) Not stop and speed straight through the intersection.
6) Not stop and turn right.
7) Not stop and turn left.
8 ) Make an illegal U-turn.
9) Stop and back up into you.
etc…you get my drift.
There are so many possibilities in this illustration. What if the car turns on a left- or right-turn signal, is there a guarantee that the car will turn in that direction? No, of course not. In fact, yesterday, I saw a driver turn on her left-hand signal in the left lane and then turned right, nearly causing an accident which reminded me of this illustration. The stock could go up or down, but is there a continuation?
We all probably busted illegal U-turns at intersections at one time or another. Is it easily predictable? No. I’ve also seen people accidentally shift in reverse at a red light, hitting the person behind them. Sometimes sudden reversals occur in stocks and if you aren’t careful, you could hit or get hit.
Sometimes a car will ignore all the traffic signals and go straight through an intersection, whether intentionally or unintentionally. Sometimes, stocks can make extreme movements, up and down, and we could miss them or get caught on the wrong side. These are usually deadly.
Now let’s say that you are in front of a driver that turns on his/her left-turn signal. You are reasonable sure that the next action will result in a left turn. It is the highest probable action the driver in front of you will take. Even still, it is not 100% guaranteed. When you see the car actually make the left turn, your odds significantly increase.You can predict that the driver will make the left turn before the left turn is fully complete.
These are signals that technical analysis produce on stock charts. These are your basic high-probability setups. Technical analysis itself is not enough, though. Ultimately, you are responsible for properly observing the signals you receive and to act in the best way possible according to the highest probable odds.
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Other stuff:
1) The tape reading series will resume this week.
2) The inside day yesterday was executed according to plan.
3) All four indices will be re-testing the 100-day MA. Beware as the 100-day is a strong and reliable MA.
Good night.
Great post!
Wonderful and accurate analogies.
dummy approved. haha
Lol. You are a good teacher.
Any of this relate to a woman yesterday who was eating a bowl of cereal and talking on her phone, nearly hitting me going through a red light?
That would be the S&P imminently
ha-ha! That is the best analogy I’ve ever read!!! Great post CA!
Very entertaining & great analogy, CA. Keep up the good work.
word
Anyone play IVAN today?
of course
Bought $LXK 30.93
Bought $APKT 12.939
Sold $APKT 13.5101
Bought more $LXK 31.16
$APKT again 13.54
CTIC breakout
Sold all $LXK 31.18
Sold $APKT 13.60
$LXK again 31.33
Bought $BGP 1.9999
*1.1999 on $BGP
Sold half $BGP 1.34/349/36
Sold half $LXK 31.50
Sold 1/4 BGP 1.35
Sold remaining $LXK 31.48/49
Sold 1/4 of remaining $BGP 1.38
Sold 1/3 of remaining $BGP 1.37
Sold final remaining $BGP 1.31
NLY
Bought $PEIX 2.01
half $PEIX 2.05
Sold 1/4 $PEIX 2.08
PFE near break of daily uptrend
Sold final $PEIX 2.02
Bought $JCI 29.5082
Sold half $JCI 29.69
Sold 1/4 $JCI 29.79
Sold last 1/4 $JCI 29.77
apkt again
apkt
trading $ZAGG quickie
Bought $PEIX 2.13
Sold $PEIX 2.12/13
ndaq
Bought $LXK 31.99
Sold half $LXK 32.4325
Sold other half $LXK 32.3325
Just wanted to give you a shout out. Thanks for doing Stocktwits.tv I know it’s not easy, thanks for sending out your trades on twitter and thanks for blogging. I know you are busy, but you are helping me learn a ton.
you’re welcome
Great post!
thx