Technical Analysis Benefits
We have studied what technical analysis and technical trading is.
We have discussed the two major types of technical traders and how those technical traders compare to the Extraordinary Investor.
There exists two foundational stock trading strategies on which all other stock trading strategies are based, which are:
• Technical Analysis
• Fundamental Analysis
Let's continue our study of Technical Analysis as one of those foundations.
The assumed technical analysis benefits:
• When trading stocks on technical data, all fundamental factors affecting a stock's value are supposedly already figured into the charts so an investor can quickly discern trends of a stock's value without having to research all types of fundamental data affecting that stock.
• Technical programmable mathematical algorithmic formulas can be created and utilized that give an investor the needed edge over investors who do not use such formulas. This works fairly well for trading firms, banks, broker-dealers and in aggressive professional day trading and swing trading strategies. Such programs are especially helpful for trading medium to larger cap stocks.
• The identifying technical historical trading patterns on the charts that includes trading volume and buy vs. sell trader activity all allow the trader to predict a new trend, a trend reversal, and the strength of such trends. In this way timely entry and exit points can potentially be predicted for the greatest potential profit.
• When basic technical data reveals potential trends that coincide with fundamentals, a significant double confirmation of a future trend or trend reversal for buying or selling is established. Such technical confirmations of fundamental data is highly valued by extraordinary investors for trading penny stocks for explosive profits.
• Technical indicators and triggers are useful to track and figure in the historical price and volume buy and sell movements of a stock (history repeats itself) which reveals patterns of trading thresholds for given time frames so as to obtain a stock's average price movement in the present and potential price movement for the future.
• Regarding future price movement, technical data can then be used, along with various technical formulas, to potentially predict future share price movement or trends and the potential length of time and extent of such trends.
• Only the most basic technical tools - the basic chart/graph patterns of trader buy/sell activity/volume data and historical prices and quotes along with basic indicators and knowledge/use of basic chart patterns and triggers are required to successfully trade rocket stocks, but only when used as an aid to fundamental data.
These are the major techncial analysis benefits that I have observed, and are listed to give you an example of the potential of technical analysis in locating, tracking, and conducting profitable trades on most forms of securities.
Technical Analysis Benefits for Penny Stocks
To trade explosive trends in penny stocks successfully, technical analysis benefits are powerful but far more limited in there function.
For any trading strategy to be consistently successful, the stock trader must at least know if the stock's value genuinely appears to be a solid bargain at the price the shares are presently trading in comparison to what they were and could be. Technical analyses is crucial in helping all traders for that purpose.
But to trade penny stocks successfully, complex formulas are not necessary and can actually hinder successful penny stock trading.
How the shares of a stock have been trading (the share value trends) for the past 5 years, 3 years, 2 years, 1 year, 6 months, 3 months, days, hours, and minutes, and even seconds is important to properly understand and gauge the present value of shares of stocks.
("Seconds" are not important to know for successful penny stock trading.)
When technical charts are viewed in conjunction with technical indicators over various periods of time, patterns of share values and buy/sell activity can more easily be observed. These are essential technical analysis benefits for all trading and investing
Successful Penny stock Investing requires a combined knowledge of Technical Analysis and Fundamental Analysis
In successful penny stock investing,
• technical charts
• basic technical indicators
• basic solid chart patterns
• complete fundamental data
• experience
must be understood and used together to determine a stocks real and perceived current value and potential to become a rocket stock in the near future.
NOTE: Technical charts, technical indicators, and basic graph patterns were briefly described in the previous topic called:
Technical Analysis - Benefits and Limitations
https://www.extraordinaryinvestor.com/technical-analysis.html
How to use such technical and fundamental data to determine a penny stock's potential...
When the technical info and fundamental info agree with each other, they then confirm the validity of each other in determining the investment potential of a given stock.
In other words, such fundamental/technical confirmations create a very accurate estimate of a stock's value and can more effectively predict a future trend of a penny stock...
...What has just been described is an essential function of technical analysis in penny stock investing, and shows us how powerful technical analysis benefits can be in combination with complete fundamental trading by the extraordinary investor when used correctly.
You have completed this topic on Technical Analysis Benefits.
Are their disadvantages and limitations to technical analysis? That is what we must learn next.
When you are ready click on the following: Technical Analysis Disadvantages