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Thursday, December 21, 2006

Stock market Trading - Technical Analysis & Decision making

Technical Analysis could assist you in better decision making and you can utilize it to your benefit. We always stress on the fact that NO single Technical indicator can give you a good Buy or Sell signal. It always has to be a collective effort, in a way. Let us consider TCS, from the Indian Market to see how we could have utilized Technical analysis and made decent profits in a very short span. We would recommend all our readers to go through our earlier articles to get a better understanding of what is being told in this article. Let us Break down the Chart into various time frames as below.


Technical Analysis could assist you in better decision making and you can utilize it to your benefit. We always stress on the fact that NO single Technical indicator can give you a good Buy or Sell signal. It always has to be a collective effort, in a way. Let us consider TCS, from the Indian Market to see how we could have utilized Technical analysis and made decent profits in a very short span. We would recommend all our readers to go through our earlier articles to get a better understanding of what is being told in this article. Let us Break down the Chart into various time frames as below.


Early April 2005: The price of TCS kept rising from around 1350 until around 1430+, but all the indicators kept moving down.

MACD Crossed down. Fast line crossed the slow line from up to down. Bearish.RSI, MFI, Williams %R and all other indicators were moving down while the price of TCS kept going up. Sounds to be very Fishy.This was the time to Short or sell your Long positions. One might argue, MACD crossed down a few times earlier too and other indicators too went down along with MACD earlier. Why this one should have given more clearer indication of a downturn. Reason. Confirmations. The number of Confirmations kept increasing. In this case, as you can see, we have also drawn "Negative Divergence" lines around the same time. And guess what. This negative divergence did NOT happen just for MACD, but for almost all the indicators. This was a clear confirmation of where the stock is headed in the short term. A 25% profit from around 1450 to 1100 in less than 2 weeks time. Of course, not all stocks would work this way and not all would have the same kind of profit ratios, but the basics are the same.

I(With a balck arrow) in the chart below shows the day we broke the last known good support point and was the second chance for someone to short the stock.Early May 2005: We now got quite a few confirmations that the stock is getting ready to move up now.

MACD fast line crossed from down below to up.Positive divergences in all RSI, MFI and Stochastics.This was a very good buying opportunity. But one could have waited further to get even better confirmation, which is what you see in the form of II(Second Arrow). This day stock broke the short-term resistance line and kept moving up from there on.From the day MACD and other indicators crossed up and had a "Positive divergence", a good run up of about 22% within approximately a months time.

Now. Is this difficult. No, Not at all. But it takes time for someone to understand all of this and have as much patience to implement it. Does this work for all stocks. Not of course. But yes, it does work for most of them.So to Conclude, Technical Analysis is a Great tool that if used properly could make you big bucks. But you must invest time to learn and understand how it works, before trying it out. Lastly, always get as many confirmations as is possible before trading any stock.
Source: stocks.dlngroup.com

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