Effective stock trading begins with recognition of the current market phase. But strategies require more comprehensive information before a trade is placed. We start with the following questions: How fast are conditions changing? Do they represent macro or micro events? How will volatility affect the trading environment? The answers will allow us to gauge the risk profile of any trade put on the table.
We show a compliance to forgo minor positions and wait for good opportunities to appear. Be Prepared (but not likely) to experience long periods of monotony between frantic surges of concentration. Anticipate to sit on your hands, wait, and watch when the markets offer us nothing to do.
Accept this undesirable state as all successful traders do. The want for excitement makes a very dangerous trading characteristic.
We manage risk on both sides of our trades. Focus on optimizing entry and exit points and focus in single direction price moves. Remember that the execution of low risk entries into average positions allows more flexibility than high risk entries into good markets. We avoid fundamental analysis of short term trading positions in favor of technical analysis of Canadian stocks.
Trending markets emit their own support and resistance fingerprint. Rising or falling moving averages regularly mark important boundaries. Accepted settings for these flexible indicators have found their way into the financial common ground, technical analysis manuals and charting programs. The most common calculations depict lines at the 20-day, 50-day, and 200-day moving averages. These three derivative plots have wide acceptance as natural boundaries for technical support or resistance
Do not assume that break down of a trendline or channel signifies the start of a new trend.This is not true and leads to unprofitable strategies. Trendline breaks merely signal the end of a prior trend and beginning of a sideways range-bound phase. An stock or ETF can easily resume a former trend after it returns to stability.
Using Volume for Technical Analysis of Canadian Stocks
Volume also establishes important technical support and resistance boundaries. When markets print extremely high volume, they undergo considerable ownership change that exerts lasting influence on price development and direction. The frenzied event may occur in a single bar or last for several trading sessions. The volume action must rise well above that historical average in any case. These powerful spikes in volume technically invoke special characteristics that will yield frequent trading opportunities.
Every good analysis should confirm current conditions through both forward oscillators and backward indicators. Popular oscillating tools that we use are such as Bollinger bands and Stochastics which help us identify overbought and oversold markets. Moving averages and MACD are used look back and measure momentum change.
Channels expand the reach of technical analysis. These unique lines expose vital information on a trend’s underlying mechanics. Unfortunately, clean trendlines don’t print often in modern markets we tend to look at them as lines in the sand and not precise numbers. Technical traders know where these lines set up and repeatedly violate them to trigger volume. This enables low-risk positions just below the radar that lead to small and large gains.