Stocks & Commodities V. 23:13 (62-64): Essentials Of Technical Analysis by Larry Swing
Technical analysis doesn’t have to be complex. Here’s a reminder to keep it simple.
We have a hard time making fast decisions with complicated information. That is why we try to simplify trading as much as possible, in order to scan fast and accurate trading opportunities in a few seconds. As Albert Einstein used to say, “Keep things as simple as possible but not any simpler.”
A stock price is determined by an exchange between buyers and sellers. If there happens to be more buyers than sellers then the market goes up. On the contrary, if there happens to be more sellers than buyers, then the market goes down. The price at which a stock is offered affects the trader’s decision. If a trader is long and the stock starts to decline, the trader could be forced to close his position. If short, he might do likewise on a rising stock.
When a trader takes a long position, he becomes a potential seller, while short positions are held by potential buyers. As prices change due to buying and selling pressure, information about the condition of the stock is revealed by the combination of price and volume action. How do you get this information? I use the following technical analysis tools as part of my daily charting arsenal:
4. Moving average (MA)
5. Force index
6. Directional movement index (DMI)