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Oracle
Info Tech
Analysis Staircase
Trap
Door Channeling
Gap
Down Breakout
MACD
Track
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-OracleTrader "Overall Score"
and how it is rated.
When
Overall Score is
selected in the
Daytrading section,
a number of factors
are considered to
rate each stock.
The most important
of these are MACD,
relative volume,
and the breaking
of support or resistance.
MACD.
This is a widely
used indicator that
has to do with momentum
and direction. Stocks
that have the strongest
MACD signal will
tend to be rated
higher than the
others.
Relative
volume. A stock's
current volume can
be significant if
it is above its
average daily volume
from recent history.
As a rule, a stock
moving higher on
strong volume will
be rated better than
one that is moving
higher on normal
or weak volume.
Relative volume
is a key component
in a stock's Overall
Score.
Support
/ Resistance.
It is said that
when a stock breaks
above a trading
range, it will usually
move much higher.
Traders call this
a breakout, and
is a large part
of the Overall Score.
When shorting (looking
for downside), a
stock breaking below
a trading range
is considered excessively
weak, so if you
select "Dark
Side (short),"
a breakdown becomes a
large part of the
Overall Score.
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Technical Analysis
There is enough discussion
in Wall Street circles about technical analysis versus fundamental
analysis to fill many volumes. The term
technical analysis refers to the study of stock charts and their
patterns. It differs from fundamental analysis, which is the study
of company fundamentals (such as corporate earnings, growth prospects,
management, etc.).
Generally, these two
forms of analysis are the basis of two schools of thought to predict the
behavior of stocks. People who believe almost exclusively in studying
company fundamentals include most Wall Street analysts, financial advisors,
and the mainstream media "stock pickers". Some of the more avid
believers of fundamental analysis are not only critical of technical (chart)
analysis,
some of them equate the usage of chart patterns with reading tea leaves
and fortune telling. The fundamentalist will insist that the only sure
way to profit on stocks is to invest in companies with solid earnings
potential, and that any kind of prediction using chart analysis is, at
best, proven only in hindsight.
The technical analyst,
on the other hand, believes that a properly interpreted stock chart contains
everything you would ever need to know about a stock. They argue that
the stock's price fluctuations and volume reflect the composite knowledge
that all investors have about the company, that charts contain everything
that can be known about the stock. They believe that the patterns will
therefore contain more information about the company than a lone fundamental
analyst could ever dream of obtaining.
Chart
Analysis
Much talk exists about technical analysis
in various stock trading circles, with terms thrown around like "backing
and filling," "head and shoulders," "basing," and
other terms related to stock chart analysis. There are also many books on the
subject of technical analysis, some of them being hundreds of pages of great
complexity, and, frankly, not very useful.
Don't let any of this confuse you. While
chart analysis is imperative for good stock trading, you only need to study
four general components. These are:
- Price versus volume.
The purpose of studying a chart is to recognize when traders are taking an
active interest in a stock, either to the buy side or sell side. You will
discover almost everything you need to know by watching the movement of a
stock price in relationship to its volume.
- Trend versus time.
Something as basic as a stock trend is often underestimated, even the by
very best technicians, but it is one of the key components of stock
analysis. A trend can simply be stated as the overall direction
that a stock is taking in a defined period of time (such as an hour, a
day, a week, a month, etc.). An uptrend is when a stock makes
higher highs and higher lows as it advances across a certain unit of time;
a downtrend is when the stock makes lower highs and lower lows.
- Channeling. All
stocks tend to trade in a specific range, or a channel. A channel
developes for a stock because it tends to form support
and resistance levels. Understanding this technology can be a valuable tool when screening for
potential trades.
Moving averages.
A moving average is a horizontal line across a stock shart that shows progression
or degression of price over time. It is computed by plotting consecutive
closing price averages. A moving average is the most useful when comparing
it to the stock's current price, because it shows momentum in one direction
or another. More will be discussed about moving averages later in this section.
Stock technicians have devised many various methods of analyzing these four
components, some of them are more complicated than others, but it all comes down to
price vs. volume, trend vs. time, suport and resistance, and a stock's moving
average(s). The fact that these four components can be shown in a myriad
of different ways is why technical analysis seems complex. But if you understand
these basic components, chart analysis is simple.
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