Starting out 2 - Technical Analysis

[theArtfuldodger]

Hey guys! Just thought I'd post my TA questions in a seperate thread from my tax questions - might heighten of the chance of some replies =)

Thanks to Shasta for answering all my tax questions! You're a legend mate.

Ok, onto the TA:

Could someone please briefly explain each of the following technical analysis measures:

- RSI
- Bollinger bands
- Stochastics
- The significance of volume

And...

- Are standard deviation channels really that useful? Do the statistical assumptions hold true (95% of all values within 1.96 s.d., 90% withing 1.645 etc)? Surely they don't (line of best fit is not the average and can the movements really be assumed to be normally distributed)?

What would be simply excellent is if an experienced TA (Phaderus? I've read a lot of your posts and they are fantastically informative) can give me perhaps between 5 and 10 of the basic and most useful TA theories/techniques to focus on while I get used to all this sharetrading stuff. Personally, after reading some literature on the topic, I am planning on being primarily FA orientated, but I definitely want to implement some TA for trend identification purposes (the whole Fibonacci numbers things seems a bit far-fetched to me... but I'm a noob, so what do I know..? lol).

In summary: some basic advice on getting grounded in TA please!

Thanks guys! This forum is great (had it recommended to me by a Forsyth Barr senior broker when she realized I was simply too poor to pay her extortionate brokerage fees... >< ah the life of a poor lowly student).

Another MEGA NOOB Q:

I realize 'traders' trade for short-term gains, and primarily rely on TA to predict trends (profiting off the peaks, buying again on the troughs), but just how 'short-term' is short-term? The only charting software I have encountered updates awfully slowly (using downloads of Yahoo! Finance with Incredible Charts sometimes leaves me a day or two behind). I was under the impression that 'day trading' would involve identifying the smallest fluctuations in even the day-to-day, hour-to-hour patterns and buying/selling, profiting accordingly - but with the chart software I have, identifying them this precisely would be impossible (well, pretty much). Is my understanding fundamentally flawed? Or do I need to just not be cheap and actually pay for some decent software?

Thanks.

[wbosher]

Check this site out - http://stockcharts.com/school/doku.php?id=chart_school

I'm sure Phaedrus will join us soon with some advice, he knows more than most of us will ever forget.

[theArtfuldodger]

Thanks wbosher =)

Looks useful! I'll check it out while we wait for Phaedrus' sage counsel! =D

[Phaedrus]

TAD, it would take half a textbook to answer all your questions properly. Here are a few more sites offering some introductory info that you should find helpful.
http://www.investopedia.com/university/technical/
http://www.meydan-forex.com/files/In...ysis%20ENG.pdf
http://www.incrediblecharts.com/sitemap.php

This is a list of the 10 TA tools that I find most useful :-

Trend lines.
Moving Averages.
Support/Resistance levels.
On Balance Volume.
Relative Strength Index.
Momentum.
Relative Volatility Index.
Stochastic oscillators.
Directional Movement Indicator.
Candlesticks.

I'm happy to help with specific queries, but first see what you can find via Google!

[theArtfuldodger]

Cheers big P! Yeah, I'm all questions atm >< . I'll get reading. I was hoping you could just clarify my final inquiry:

I realize 'traders' trade for short-term gains, and primarily rely on TA to predict trends (profiting off the peaks, buying again on the troughs), but just how 'short-term' is short-term? The only charting software I have encountered updates awfully slowly (using downloads of Yahoo! Finance with Incredible Charts sometimes leaves me a day or two behind). I was under the impression that 'day trading' would involve identifying the smallest fluctuations in even the day-to-day, hour-to-hour patterns and buying/selling, profiting accordingly - but with the chart software I have, identifying them this precisely would be impossible (well, pretty much). Is my understanding fundamentally flawed? Or do I need to just not be cheap and actually pay for some decent software?

What I mean is: is there actually software which will update in real time, as the stock is bought and sold and will provide detail down to the very sale, so you can see even the smallest fluctuations (on the scale of a few hours) and therefore make the biggest profits? Or is the only way to achieve this actually visting the exchange and participating in person? OR is this simply not the level of detail which is traded at?


What a 'mouthful'! I hope you get the gist!

Thanks a tonne. These resources look really great!


A.

[AMR]

DON'T daytrade. Not until you have at least a few hundred hours of experience with non-leveraged instruments, a well backtested plan, knowledge of your emotional flaws, and something outside trading to keep you going if you run into a bad patch.

It's the insane amount of leverage which makes them profitable.

[Phaedrus]

Just how 'short-term' is short-term?

What's in a name? For some, anything less than 12 months would be "short-term", for others something less than a day. For me, maybe a week?

I was under the impression that 'day trading' would involve identifying the smallest fluctuations in even the day-to-day, hour-to-hour patterns and buying/selling, profiting accordingly

That's roughly it. Answer me this though, why are you so interested in day trading? Do you realise that day-trading requires the highest levels of knowledge, discipline, capital, skill and experience and that the majority of day-traders go broke? And you (a beanie!) want to START OUT on day-trading??? You'd be cannon fodder.

Is there actually software which will update in real time, as the stock is bought and sold and will provide detail down to the very sale, so you can see even the smallest fluctuations (on the scale of a few hours) and therefore make the biggest profits?

Yes there is - it does all that and a whole lot more besides. Forget your timescale of a "few hours" - even a few seconds is unacceptably slow. For day-trading you need live streaming data, updating your charts in real-time with, for example, a new candlestick every 60 seconds. (That's not an update every 60 seconds - updates are live and appear in real-time as trades occur.)

.....OR is this simply not the level of detail which is traded at?

Depends. The idea is to select a level of detail appropriate to your preferred investment timeframe.

[theArtfuldodger]

Wow fantastic Phaedrus! Thanks. Great explanations. You and Shasta should write a book! =D

"Cannon fodder" lol. Yeah, I'm definitely going to get some experience first, I was just interested. Day trading sounds exciting - hopefully I'll be at that level in a year or two or so =)

Thanks everyone for your input. All very informative =)

[wbosher]

You and Shasta should write a book!

I've suggested a few times that P should write a book...still waiting.

[shasta]

Wow fantastic Phaedrus! Thanks. Great explanations. You and Shasta should write a book! =D

"Cannon fodder" lol. Yeah, I'm definitely going to get some experience first, I was just interested. Day trading sounds exciting - hopefully I'll be at that level in a year or two or so =)

Thanks everyone for your input. All very informative =)

No point writing a book when there are so many good ones out there.

If you want to combine the best elements of TA & FA, i would recommend investing $60 (or whatever the cost is) & buy the book, "The Aggressive Investor", by Colin Nicholson.

Comes with a CD with case studies & filters for both TA & FA

Along with "The Intelligent Investor", these 2 books are well worth reading.

Well worth the investment