6.- Step 4 - Technical Analysis.pdf

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Sec6 Step4.pdf
5-Step Investing Formula
Online Course Manual
6
Step 4: Technical Analysis
Section 6 of 11
www.investools.com
© 2005 INVESTools Inc. All rights reserved.
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THE 5-STEP INVESTING FORMULA
Step 4: Technical Analysis
Section Contents
SECTION 6 Step 4: Technical Analysis
Technical Indicators ....................................................................................4
Moving Averages ..............................................................................6
MACD ..............................................................................................10
Stochastics ......................................................................................12
Volume ............................................................................................15
Support & Resistance .....................................................................17
Buy Signals ...............................................................................................18
Money Management .................................................................................30
Sell Stop Orders .............................................................................32
How Many Shares to Buy ................................................................35
Sell Signals ...............................................................................................39
Insider Trading ..........................................................................................43
© 2005 INVESTools Inc. All rights reserved.
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THE 5-STEP INVESTING FORMULA
Step 4: Technical Analysis
Course Overview
INTRODUCTION
SECTION 1 Getting Started
Logging into the INVESTools Investor Toolbox
Support Links
Workshop Review
Account Information
Subscription Renewal
Technical Support
Contact an Instructor
SECTION 6 Step 4: Technical Analysis
Technical Indicators
Moving Averages
MACD
Stochastics
Volume
Support & Resistance
Buy Signals
Money Management
Sell Stop Orders
How Many Shares to Buy
Sell Signals
Insider Trading
SECTION 2 Introduction to Investing
Tolerance for Risk
Setting Goals
Asset Allocation
Tax Exposure
Brokerage Firms
Introduction to the 5-Step Investing Formula
SECTION 7 Step 5: Portfolio Management
Creating a Portfolio
Managing Your Portfolio
Paper Trading Account
THE 5-STEP INVESTING FORMULA
SECTION 3 Step 1: Searching for Stocks
Using a Prebuilt Search
Navigating the List of Stocks
BONUS SECTION
SECTION 8 Bonus Topics
TurboSearch
Index Tracking Stocks / Exchange-Traded Funds
Dow Jones Industrial Average—
The Diamonds (DIA)
S&P 500—The Spider (SPY)
NASDAQ—The Qs (QQQQ)
SECTION 4 Step 2: Industry Group Analysis
Top-Down Analysis
Big Chart
AutoAnalyzing All Stocks in a Group
Best & Worst Industries List
SECTION 5 Step 3: Fundamental Analysis
Phase 1
Phase 2
Price Pattern
Volatility
Zacks Report
Market Guide
News
AutoAnalyzer™
SECTION 9 Introduction to Options
Advantages/Risks of Options
Leverage
Call Options
Put Options
Covered Calls
SECTION 10 Appendix
Phase 2 Stock Scoring Form
Phase 2 Quick List for Zacks Report and
Market Guide
Investment Tracking Record
SECTION 11 Glossary
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THE 5-STEP INVESTING FORMULA
Step 4: Technical Analysis
Step 4: Technical Analysis
The next step in the process of systematic evaluation is technical analysis.
Fundamental analysis looks at the company, helping you decide whether or not
it would make a solid investment. Technical analysis, on the other hand, looks
at a company’s stock to determine when to buy and when to sell. Technical
analysis is useful in forecasting potential direction to better time your entry and
exit points.
Technical Indicators
Five simple indicators for technical analysis are widely used in the financial
industry:
Moving Average: Helps you determine the current trend of the stock. “The
trend is your friend” is a common saying in the market. You want to trade in
the direction of the dominant trend and stay away from buying stocks or call
options when the trend is clearly down.
MACD: Measures short-term momentum. The MACD tends to be the first of
the indicators to give a buy or sell signal and gives an early warning as to when
a trend is losing momentum.
Stochastics: Measures a stock’s bullish or bearish sentiment. It helps you
determine whether the buyers (bulls) or sellers (bears) are dictating current
trading in the stock.
Volume: The number of shares traded each day. High volume is relative to the
average volume, showing when institutional money is buying heavily (if stock
is going up) or selling heavily (if stock is going down). Significant uptrends
and downtrends tend to begin with large volume surges.
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THE 5-STEP INVESTING FORMULA
Step 4: Technical Analysis
Support and Resistance: Knowing how to read these indicators can help
protect you from buying just before the stock hits a peak and comes back
down. Support and resistance areas help you see trading ranges more clearly
and to forecast stock movement more accurately.
IMPORTANT: You can never get a valid buy or sell signal for a stock based
on just one indicator. Certain combinations of indicators must occur in certain
ways to indicate buy and sell signals. We will fully outline these combinations
later in this section.
Do not blindly follow buy and sell indicators without following the rules
(to be discussed). You will have much better success by correctly implementing
the buy and sell signals versus haphazardly investing your hard-earned money
on one or two green arrows.
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