04 September 2013
How To Use Stock Charts To Configure Entry And Exit Strategies
The Guaranteed Formula.
I have included a list of the most popular charts used by full time traders. Having a list of charts and knowing what to do with them are two completely different things. This is where the magic comes in. We all want to cut to the chase and start making money right away with a guaranteed formula for making money. The truth of the matter is, there are no absolutely guaranteed formulas for making money in the stock market. In fact you could loose part if not all of your money. It is the risk versus reward that makes Stocks, Bonds, and FOEX so appealing. It is appealing because deep down inside we know there is a system for making money by using charts. Most people such, as my self, are looking for a system that we can use by route. We are looking for that one proven system that we can apply our willingness to take the risk. I am going to show you one method used by full time traders that may help you in your journey.
I don't believe in wasting time. I am going to cut to the chase and get right into the nitty gritty. We can create a successful strategy by mixing these three charts, the Japanese Candlestick, the MA, and the MACD. The Japanese Candlestick chart offers more buy and sell indicators than all other charts combined. You can sign up for my free course below. However, no one chart alone can provide an absolute entry and exit strategy. We are going to add two of the most trusted charts by full time traders for determining entry and exit strategies. We are going to add the MA chart for Moving Averages and the MACD for Moving Average Convergence Divergences. They are listed on the top of the list below. Many short term full time trades prefer these three charts combined and open in three windows, the weekly chart, the daily chart and the intra-day chart.
The Japanese Candlestick Charts
There are basically 17 different money making patterns or symbols used in the Japanese Candlestick chart. However, we will be searching for only a few for determining our entry point. We can use either of the following moving from low to high. We can use the engulfing pattern with the bullish white candle overshadowing the smaller red. You can use the morning star with the bullish white candle over shadowing the small star in the upward trend. Keep a sharp eye out for an inverted hammer with a white bullish candle over shadowing it. You should be searching for stocks that have fallen below their normal pricing, but are now shooting back up. We are using the candlestick as a confirmation to the bullish pattern going up.
MA, Moving Averages.
The MA is used to smooth price fluctuations and identify trends. However, there is a trick to this. You should be looking to catch the MA as it is moving up and before the price starts to go up. The question is, how do you do that? If you catch the MA to high it may be over bought. You may be paying too much, no profit. You can do a quick over lay of an EMA which is more of a straight line for average value. Also, check your pricing over the last few days to a week. You will want to enter a trade assuming the price has not caught up to the upward force of demand. This is where the trick is. This is where your profit is. You can see the demand going up with the MA and you confirmed it with the Candlestick chart.
The MACD, Moving Average Convergence Divergence is a an indicator that utilizes moving averages to
identify possible trends and an oscillator to determine when a trend is overbought or oversold. We can use the moving averages to confirm the upward trend and the oscillator to determine wether or not it has been over bought. You can get more specific details about this particular strategy by reading Mr. Elder Alexanders book Entries and exits. There is also a free software program called the TC2000 that can be programed to do all of this for you. It can be programmed for straight entry and exit points or buy and sell. You can also experiment by going to forex Stategy Builder and test this strategy for free.
Free Chart Services
Technical analysis consists primarily of a variety of technical studies, each of which can be interpreted to generate buy and sell decisions or to predict market direction. The technical analysis provided by charts are used more for short term price action decisions. It ignores fundamental factors. The fundamental data or analysis is used primarily for long term or "delayed" forecast of market or price movements. It is the short term technical analysis provided by charts that has become the primary tool with which successful traders use to set up stop loss and profit targets.
Support and Resistance Levels
One use of technical analysis, apart from technical studies, is in deriving support and resistance levels. The concept here is that the market will tend to trade above its support levels and trade below its resistance levels. If a support or resistance level is broken, the market is then expected to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.
Popular Technical Analysis Tools
Moving Averages (MA): Indicators used to smooth price fluctuations and identify trends. The most basic type of moving average, the simple moving average, is the average of the past x bars ending with the current bar;
Moving Average Convergence Divergence (MACD): Indicator that utilizes moving averages to identify possible trends and an oscillator to determine when a trend is overbought or oversold;
Bollinger Bands: Bands that are placed x moving average standard deviations above and below a simple MA line;
Fibonacci Retracement Levels: Indicator used to identify potential levels of support and resistance;
Directional Movement Index (DMI): A positive line (+DI) measuring buying and a negative line (-DI) measuring selling pressure;
Relative Strength Index (RSI): Momentum oscillator that is plotted on a vertical scale from 0 to 100;
Stochastics: Momentum oscillator that measure momentum by comparing the recent close to the absolute price range (high of the range minus the low of the range) over a period of x bars;
Trendlines: Straight line on a chart that connects consecutive tops or consecutive bottoms of prices and is utilized to identify levels of support and resistance;
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