How To Profit Using Technical Indicators
Author: Thomas Kasper
Many investors believe there is too much emphasis put on technical analysis. Now I'll admit; many traders go overboard with the number of technical studies used. There are hundreds, if not thousands of different studies that can be used when charting a stock's price movement. However, all of this complexity can be overwhelming, exhausting, and extremely unnecessary. In fact, many studies will actually contradict each other! How can anyone expect to make informed decisions with all this chaos?
Well, quite frankly I will say that you can't. Now I am not a believer that technical analysis serves no purpose. I do NOT abide by the old-fashioned Warren Buffet philosophy that fundamentals are key and that value investing is the best approach. I believe that one should look at the fundamentals of a stock to determine the condition of the company and the likely overall direction of the stock. But a trader can also add some very simple technical indicators that will tell you all you need to know about the direction of a stock price from a technical aspect of trading. The most telling of any indicators are moving averages and volume.
When a short term moving average crosses a longer term moving average, that is the direction that the stock is moving and will most likely continue move. This is referred to as a crossover. Crossovers are the easiest way to determine a trend change and act as buy and sell signals. One example is when the 50-day moving average crosses the 200-day moving average. This is an intermediate to longer-term trend indicator that should be used for positions that are typically expected to be held for 1 to 3 months. Other tools such as the MACD can be used to detect short-term price changes and are more common for traders that plan to hold a position for less than one month, as there will likely be a crossover within that time frame indicating to close the position and take your profit.
This may seem like an oversimplification, but if you set these moving averages as a default on your charts, you will quickly realize that if you use these crossovers as an indicator to open and close positions you will earn great profits on a consistent basis. Also, with the added leverage of options, you can far outperform any value investor, even in the long term. For more trading information go to http://www.optionstradingresource.com and increase your trading knowledge.
You can profit from options using a few key technical indicators. To learn more about options trading go to http://www.optionstradingresource.com for some great educational tools and resources.
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