There are literally thousands of stocks out there and there is absolutely no way you can go through all of them before you make your final decision on one and you want to actually invest/trade the company. Even if you can perform solid due diligence by hand, why waste your time when you have stock filters and research tools that help identify the good companies from the crap.
Assuming you already use stock filters and research tools, when you compile that list of companies that meet every criteria you are looking for, do you invest in all of them? Heck no. You still have to dig a little deeper. Usually that digging requires a little technical analysis.
Depending how strict you created your stock filter, the number of companies that get spit out at the end may vary greatly. If you’re list is extremely large, you’re going to want to create a method of TA that simply allows you to blast through the list.
Follow these quick steps to take down your TA time:
1) Switch to Candlesticks.
It’s cleaner and easier to read. Quite subjective I know, but you get every attribute an OHLC chart has and more in candlesticks.
2) Trend Analysis:
Create trend channels. The trend is your friend and going against it hurts more than it helps.
3) Identify the Support and Resistances
Remember the cardinal rule: Broken resistances become the next level of support and broken supports become the next level of resistance.
4) Pattern Catching
There are so many types of stock patterns and formations. Get to know a few and know them well. The top ones to know are reversal patterns. For example: Double tops, double bottoms, triple tops, triple bottoms, etc. Other good patterns to know are continuation patterns such as pennants, ascending/descending triangles, and even the cup & handle formation.
5) Look for Volume Hints
Look for increasing volume trends or explosions in volume. These are easy tells for action.
6) Minimize Your Usage of Technical Indicators
MACD, RSI, STOCHS, FIBONACCI BANDS, OBV, DMI, VOLATILITY, etc. There are so many indicators out there and all they do is create information overload. Follow 2-3 and leave it to that. I use MACD, STOCHS, and Simple Moving Averages.
Once you get good following these 6 steps, you’ll have your TA time down with the quickness. Just keep it simple. The hardest part is recognizing chart patterns, but that will all come in time and repetitive practice.
Photo Credit: epicharmus