10 Different Ways the Technician Thinks and Acts

Different ways the technician thinks and acts are as follows:

1. Technicians believe that behind the fundamentals are important factors:

At any given time, some investors have gains in the stock, and usually some have losses. Those with gains want to safeguard them and if possible, build them higher, they will hold the stocks.

technician thinks and acts

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Those with losses will adopt different tactics; some will cut their losses short by selling out early when the stock price begins to decline others will sell when a minor rally has moved the stock up to their cost price; and still others will hold on doggedly until there is a turnaround.

Each of these decision points can be spotted on charts : current configuration to show the action of the past week or so; intermediate – and long-term patterns to find the previous important price levels at which selling is likely; and interim and long-term high points from which the stock started to move down in the past.

In this method of analysis, a vital factor is volume. Volume is favourable on the upside when the number of shares traded is greater than before and on the down side when the number of shares traded dwindles.

Volume is unfavourable when volume dips as prices rise or increases when there is a decline. None of these indicators are concerned with the fundamentals of the corporation.

2. Technicians act on the not the why:

They recognise that formations and patterns signify changes in real value as the result of investor expectations, hopes, fears, industry developments and so on. They are not as impressed with the fundamental value of an; security as they are with the current and prospective values reflected by market action.

3. Technicians are not committed to a buy-and-hold policy:

As long as the trend is up, they will hold a stock. This may be for months or even years. But if there is a reversal, they will sell within hours of purchase. They recognise that, to achieve the greatest gains, they must never let sentiment or emotion override facts (as shown by technical indicators) and should always get out of situation which, on available evidence, is no longer profitable.

4. Technicians do not separate income from capital gains:

They look for total returns that are the realised price less the price paid plus dividends received. This is a sharp contrast to most long-term investors who buy a high-dividend paying stock and hold it for years, through up-and-down fluctuations.

To the technicians, such strategy is foolish. A stock may continue to pay liberally but lose 50% of its value. If a stock is to be judged solely on its income, a non-dividend payer would have no value at all.

5. Technicians act more quickly to make commitments and to take profits and losses:

They are not concerned with maintaining a position in any market, any industry or any stock. As a result they are willing to take smaller gains in an up market and accept quick losses in a down market. Traders/technicians want to keep their money working at maximum efficiency.

Technicians know that there is no real value to any stock and that price reflects supply and demand which is governed by hundreds of factors, rational and irrational. No one can grasp and weigh them all, but to a surprising degree, the market does so automatically.

6. Technicians recognise that the more experience one has with the technical indicators, the more alert one becomes to pitfalls and failure of investing:

To be rewarding, technical: analysis requires attention and discipline, with quality stocks held for the long terms, time can make up for timing mistakes. With technical approaches, the errors become clear quickly.

7. Technicians insist that the market always repeats:

What has happened before will probably be repeated again, therefore, current movements can be used for future projections.

With all markets and almost all securities, there are cycles and trends which will occur again and again. Technical analysis, especially charts, provides the best and most convenient method of comparison.

8. Technicians believe that breakouts from previous trends are important signals:

They indicate a shift in that all-important supply and demand. When confirmed, breakouts are almost always accurate signals to buy or sell.

9. Technicians recognise that the securities of a strong company are often weak and those of a weak company may be strong:

Technical analysis can quickly show when such situations occur. These indicators always delineate between the company and the stock.

10. Technicians use charts to confirm fundamentals:

When both agree, the odds are favourable for profitable movement if the trend of the overall stock market is also favourable.

Submitted by : Professor Lucas, Category : Investment