The last educational seminar is over. Congratulations for those of you who were patient enough to take part in our weekly meetings. We really tried hard to present the information in a consistent way and it was a pleasure for us to prepare ''Investing 101'' !
I guess there were many questions left after our last seminar. There were many new things ,so now you are heavily loaded with information for researching. Make sure that the last session is clear to you because the content is a mixture between fundamental and technical analysis, two powerful tools that will help you a lot in the future.
You have covered support and resistance line, Simple moving average (SMA) and some important financial ratios. In this post, I will mainly talk about the first two. For all the ratios look at the definition sheet that Louis Savoret prepared for you and I will give links in the end for more explanation on the ratios on my blog.
Support and Resistance lines are part of technical analysis that every investor needs to know. I am going to give you the basics and just to point out some a bit more advanced concepts that some traders are using. Resistance line is where the price of the share prize tends to stop growing up i.e. it "resists" to go up further for a fixed period of time. The time period could be quarterly, annually, etc.
With the diagram above you can see that the price is not crossing the Resistance line for one year. I said that the periods are normally quarterly or annually, however, analysts are making these technical lines so that they can be representative- they are giving you information about the price movement. When judging entry and exit investment timing using support or
resistance levels it is important to choose a chart based on a price interval
period that aligns with your trading strategy time frame.
Support line is the price level which, historically, a stock has had
difficulty falling below. It is thought of as the level at which a lot of
buyers tend to enter the stock. And it makes sense because everyone want to "buy low sell high " . In other words if a stock price is moving between support and resistance
levels, then a basic investment strategy commonly used by traders, is to buy a
stock at support and sell at resistance, then short at resistance and cover the
short at support.
Simple Moving Average (SMA) . The name explains it quite well but still I will put some notes here. As you already know we are using finviz.com quite a lot . I will show you how the percentage number is formed :
SMA= ( (percentage change day 1) + (percentage change day 2) +...+ ( percentage change day n) )/n
But it is simple moving average, which means that after one day the first number will be the day 2 change and the last number will be percentage change n+1 day . On finviz.com there are given for 20,50 and 200 days . They are lines and as you can imagine the 200 will be less volatile line where as 20 days SMA will be more twisted. Look at the example (ticker:HERO ) :
From the example you can see that SMA20 is -4,93% and SMA200 is -57,68%,which means that the price downward movement has slowed down. This does not give us much information because we do not have the fundamental analysis of the company but it could be e.g. a sign of changing the trend to upward movement. It is important to note that when two SMA lines are crossing this is a signal that there is either a slowdown in the trend or even a future trend change e.g. from downward to upward. Most of the websites are not using SMA but this could a strong tool for the stockscreener, especially when you are looking for a growth stock.
There are a few more things that I want to share. There is a book that is particularly good for those of you who want to learn more about technical analysis "George Lindsay and the Art of Technical Analysis: Trading
Systems of a Market Master". It is recommended reading for me by the president of the society Jan Svenda. His comments are: "Although sometimes bizzare and crazy it gives us a nice
exposure how the technical people think".
Do not forget to look at the links that I gave especially the first two because there are things that are used by professional traders.
Links:
1. I strongly recommend the following side for technical analysis. You can use daily volume,average true range. There are also handful drawing tools that you can make your own analysis. Check it out! www.hotstockmarket.com
2. Technical analysis tools and more information on climaxes, buy/sell signals READ IT! http://www.investors.com/images/promotional/climaxtop_booklet.pdf
3. Post for Quick and Current ratio on my blog:
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