Technical analysis is an attempt to forcast future price movements based on historical price movements. The historical data we require to do this is price and volume. Price typically includes open, close, High and low for a given time period.
Primary, Intermediate and Short term trend
There are three types of trend that we should be aware of. The primary trend, Inermediate trend and short term trend.
Primary Trend:
- 9 months(39 weeks) to 2 years(104 weeks)
- Through to trough typically 3.6 years(187 weeks)
- Rising and falling trends typically 1 to 2 years ( 52 to 104 weeks)
- Bull trend lasts longer than bear trend, as it takes longer to build something than it does to tear it down
Intermediate Trend
- 6 weeks to 9 months(39 weeks)
- Sometimes longer rarely shorter
Short Term Trend
- Lasts 2 to 4 weeks
- Sometimes longer, sometimes shorter
- Influenced by random news events
- Much more difficult to identify than intermediate trends
What is Fundamental Analysis?
Fundamental analysis is the study of the financial health of a company. It involves looking at their profits, their level of dept essentially painting an alround financial picture of how the company has performed to try and predict how the company will perform. This is a perfectly reasonable thing to do but I would only look to doing this if I was looking to invest long term in a company.
I prefer to trade purely off technical analysis. The reason behind this is because from my point of view it is easier to do this than study the fundamentals of a company. Technical analysis also has the benefit of having the ability to be input into a computer program. This is the key reason I prefer technical analysis. I love the idea of being able to click a button and a list of potential trades be generated for me. Don't get me wrong unless you develop a fool proof system you will always have some work to do in the execution of the trades but it certainly cuts down the time compaired with looking through 350 charts for the FTSE 350.
I predoiminatley trade stocks from the FTSE 350 index. For a spread betting beginner this gives me plenty of oportunities. I have used proRealTime to create what they call proScreeners. A stock screener is a way of searching through instruments and only returning the ones you want to look at based on given criteria. For example I like to look for trending instruments. I have therfore ctreated a screener to return all the stocks in the FTSE 350 that have an ADX(14) value of greater than 25. This returns me a list of stocks that are already in, or are about to enter, a trend. You can then go further to say if the DI- is greater than DI+ the instrument is in a down trend and if DI+ > DI- the instrument is in an uptrend.
