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What is the Most Important Indicator of All?
Most stock market traders have a favorite technical indicator. The one that they have the most confidence in. The one that, from experience, they trust the most. Or the one that they always look at first. For some it is the RSI. Others like the Stochastic or the MACD . Or one of the literally hundreds of other indicators that are available. Well, I love the MACD. And the Stochastic is also a favorite. But there is one indicator that I refer to more often than any other. However, before I tell you what it is, it is important that this discussion is placed in context. I always stress with the traders that I mentor that the most important part of your analysis is price action. By this I mean that the very first thing you should look at is the shape of the stock's chart. And any patterns that you may be able to identify. In particular, look for trends and consolidation. Candlestick reversal patterns and support and resistance levels. And be particularly aware of all time or 52-week highs or lows. Also, be on the lookout for double tops and bottoms and triangles and head and shoulder patterns. Because it is only in the context of the basic price action that you can make your trading decisions. And it is only from this understanding that you should begin to apply your technical indicators. So, establish the context for your further analysis. Indeed, use this first process as a screening device. Because, unless the chart immediately "speaks" to you, you should eliminate the stock from any further review. What I mean by this is that unless there is a clear reversal pattern or potential for a breakout, move on. Don't waste time analyzing charts that have no likelihood of immediate movement. And one of the best patterns for short-term trading is the channel. Always keep an eye out for these and when you find one, give serious consideration to trading them. Now, let's get back to our earlier discussion. What is the most important indicator? Well, whilst this might surprise some of you, I believe it is volume. You see volume is an indication of the strength of price action. A market needs high volume or increasing volume to sustain a movement in price. So we want to see volume moving in the direction of the price. Increasing both in an uptrend and also a downtrend. But realize that it takes more effort to push prices higher than it does to cause them to drop. So increasing volume is more significant in an uptrend than a downtrend. If volume is diverging from the trend [going down instead of up] then we would normally not carry out any further analysis. Because the lack of volume means that there is a lower probability of price movement in the direction of the current trend. Note however, that divergence can be an indication that a trend is about to end. So this can be an early sign of a reversal. Another important aspect to volume that is often overlooked is in regard to retracements. Because the volume during retracements gives us a significant indication of the strength of the overall trend. A strong uptrend should have higher volume on the upward legs of the trend and lower volume on the downward or corrective legs. Similarly in a downtrend. Volume is best plotted below your chart as a histogram, or series of vertical lines. And it helps to add a moving average line over the histogram to smooth the volume readings. I use a 3 day MA but you can experiment to see what works best for you. But most importantly, always consider volume before entering a trade. David Chandler For free mini-course on stock and options trading click the following link: www.StockMarketGenie.com">http://www.StockMarketGenie.com stockmarketgenie.blogspot.com/">http://stockmarketgenie.blogspot.com/ Ordinary People Making Extraordinary Profits! The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn't worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.
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Pension Plans If you have a pension plan at work you will want to read this and if you don't you will still want to because it affects your retirement account.There are two kinds of formal retirement plans that are set in place by employers. Living Trust Investing: Income Considerations when the Grantor Dies A common problem I often see when working with living trust beneficiaries and trustees is the lack of attention in rethinking income strategies in the event of the grantor's death.When the grantor of a living trust dies, the trustee (especially a family member or close friend) sometimes feels reluctant to revise the portfolio, feeling it's an affront to the wishes of the deceased. Its A Bull, Its A Bear, Its Suptertrader! The higher the market goes the more confusing are the "experts". In the September 14 issue of Investor's Business Daily newspaper we find the great prognosticators such as:Sheldon Jacobs, editor of No-Load Fund Investor newsletter quoted that he is recommending having more cash in your portfolio. Wal-Mart: Discount Store, Discounted Stock? As GuruFocus updates the stock buys and sells of gurus, Wal-Mart (WMT), the discount retail giant, stands out as the stock with a high ValueRank (7 out of 10). Just recently, Clipper Fund's James Gipson and T. NASDAQ 800? In November of 2000 when the NASDAQ was trading at 3000 I wrote in this column that the NASDAQ Index would fall to 1500 and I got lots of heat for saying it. Microsoft had fallen from $129 to $60 per share. Price to Earnings Ratio - P/E After finding the price of a particular stock, usually the next number everyone looks at is the P/E ratio.P/E is the ratio of a company's share price to its per-share earnings. The Big Bad Bear The big bad bear is stirring again. So far he has stretched, yawned and peaked out of his cave. China Syndrome There has been great condemnation recently because China has been selling its goods on the world market at prices below what other countries, especially the U.S. Investment Research - The Dalbar Study Very few people, even professionals, have heard of the Dalbar Study that originated in 1995. Its purpose is to determine the profitability of trading for the small investor of mutual funds. Intervention Intervention. Now don't let that big word scare you. Keep Your Profits It looks like we have now entered a new bull phase in the stock market and I have a question for you. Will you give back the profits that you make this time as you did in 2000? You sure don't want to, but you are not going to get any help from your broker. Stock Options Trading Strategies - Lean Professional stock options traders use the term lean to refer to one's perception about the directional strength of the stock. When you own a stock option and intend to hold it for a period of time, you are aware that you will probably be holding it while it goes up and while it goes down. Discover the Retirement Breakthrough the Federal Government Created for You - The Roth IRA! If you don't know what a Roth IRA is then stop everything, print this article and read it carefully as this will certainly be the most valuable information you read this year. This next retirement account is to your net worth what light bulb was to electricity. What To Buy Now I am sure that if you have a brokerage account with a "full service" broker you have been getting calls about what to buy and sell. If you have big losses in certain stocks you might be hit with that great Wall Street lie to buy more so you can 'Dollar Cost Average'. The Right Mutual Funds For Baby Boomers If you are a baby boomer, time is not on your side. Many baby boomers see retirement age fast approaching with little to nothing in the way of retirement assets that will allow them to actually retire and live a comfortable lifestyle. How to Pay Less and Get More: Discount Broker vs Professional How do you invest? What do you really pay? At the end of the day, what are your real results? These are questions smart investors should be asking themselves (but usually don't). In this era of more fees, misc. Two for the Money Look back over the years and try to remember how many different stocks and mutual funds you have owned. Suppose you had owned only 2 different equities during that entire time. Momentum One of the basic laws of physics states that a body in motion will continue in motion in the direction it is going until interrupted by another force.That basic physics law also applies to stocks and mutual funds. Choosing An Investment Stock Broker If you want one.And I don't recommend any broker with whom to trade who will be giving you advice on what to buy and sell. Hedge Fund Advertising Have you seen all those big full page ads for hedge funds in the Wall Street Journal, the Financial Times, Investors Business Daily? You haven't. Maybe they are being drowned out by the regular mutual funds who continually tell you how great they are.
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