Biggest Question Asked & Answers

When they want to make a trade or investment, first question they ask is,

• What to buy?

Answer: It will depend on two aspects.

1) Fundamental Check
2) Technical Check

As technical analysts we are told to focus only on technical’s of charts, then why fundamental check? 

As a short term trader, we are not concerned with the fundamentals much, but still it is prudent to be aware about the group a company belongs to, and whether there is sufficient trading volume round the year. 

Companies with low fundamentals tend to have low trading volumes, and there could be an occasional spurt in volumes, but it proves to be short lived. 

Short term traders may not get deep into the balance sheets of a company, but they must at least check the overall trading volume of the company they want to trade.

For an investor, fundamental check is must before they think of entering a stock. Fundamental check makes us aware about company’s health in past & present, and what are the scopes of growth.

Important Note: A long term investor must never enter a stock without doing a fundamental check first.

Fundamentals are the core of a company, the fuel in the engine, which will drive the company to newer heights in future.

Technical analysis can also help us decide what to buy.

With help of set of explorations it is possible to spot stocks when they are giving a positive breakout. Once we filter such stocks based on technical analysis, we can do a fundamental check on it before go long for long term. Such filters help us spot such stocks which are ready to buy candidates so we need not ask the question of when to buy here, it is already answered due to filters set.

What if a stock breaking out positively in all time frames fails in fundamental check?

In that case,

1. Do historic volumes check
2. Check for any erratic movements historically

If the stock passes both the above tests, i.e.

volumes have be good on overall basis, and no erratic movements or abrupt halts in trend witnessed in past, then one can enter purely based on technical signals with a strict stop loss initially and later strict trailing stop.

If the stock passes the first test, but fails second test, then trade with caution. Such stocks can rally for some time, but then suddenly without any respect to technical analysis; abruptly start falling with seller circuits. Traders are not able to even exit such stocks. And when they get a chance 

to exit, big erosion in prices is already witnessed.

Now let us address another most important question.

• When to buy?

Answer: This question is answered with help of technical analysis.

A stock may be fundamentally great, but until it starts moving, allocating money in it will only mean blocking your money in advance.

Technical analysis helps us to enter in such fundamentally sound stocks at right time. Like mentioned above a stock may be good at fundamentals, but it could take a long time before its value is recognized by the market participants. Till that time, it may fail to rise. Technical analysis enable us to spot the point at which such medium to long term rise starts and make us enter at right time.

Entry must be made based on technical analysis only.

• How long to hold?

Answer: This question is answered with help of technical analysis.

When entry is made in a stock after fundamental & technical criteria’s are met, first thing an analyst tend to do is to set a target based on various factors.

A target is set based on some chart pattern, or based on some historic high that can be reached by a stock in future.

But a stock can keep advancing, surpassing all the previously met levels, and make new all time new high’s.

To avoid making a premature exit, we must set trailing stops such that it enables us to make the most of the long term move that is witnessed on charts.

Unless a stock is stuck in a range, Never keep a cap on upside. Sky can be the limit when a stock is in a long term bullish trend.

Exit: Only when long term bear signals are received on stock.

• When to Sell?

Answer: This question is answered with help of technical analysis.

Trend reversal signals are received on respective charts of stocks and it is at that point, when a stock should be sold. It should not be sold based on some news. All information is incorporated in charts and we have to do what chart says.

CONCLUSION:

For all major decisions knowledge and use of Technical analysis is must. If we are aware about the fundamentals of stock in check, it can help us to cancel out the noise that is generated on charts in the short term.

When focusing on medium to long term, noise like erratic intraday movement, intraday crash, short term, mostly single candle breach of major averages can be ignored and one can keep sound mind without getting into panic.

For all short term, medium term and long term vital decisions knowledge and use of technical analysis is must, so one must learn and use it for their own financial well being as far as financial markets are concerned.