Technical Analysis

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Some investors sell stocks on gut instinct… I like to have a system.

Every good trade starts with good analysis.  For me, that means two things, detailed fundamental analysis, and rigorous technical analysis.

What’s fundamental analysis?  It’s when you look at the details surrounding a specific security.  In the case of stocks you might look at revenue growth, margins, earnings, cash flow, and balance sheet strength.  You also analyze new products, market share, and product life cycles.  The analysis might even look at the management team and ownership structure.

I could go on for three more pages about fundamental analysis… let’s just say it’s extensive and detailed.

Technical analysis is a totally different animal.

All technical analysis measures is price action.  That’s it.  It’s just looking at where buyers snap up shares and where sellers dump them on the market.  Once you identify an area where buyers overwhelm sellers you’ve found a support level.  Resistance is where sellers far outnumber buyers.

Technical analysis (especially support and resistance) is a great tool to determine entry and exit points.  Now, keep in mind there’s lots of other parts to technical analysis.  Unfortunately, I just don’t have the space to describe them all here.

Now here’s a little secret profitable traders know.

Once a security breaks a support or resistance line it often continues to move in that direction.

Just take a look at Citigroup (C).  In 2006 Citigroup put in a low of 39.50… that’s the blue horizontal line on the chart.  It’s a perfect example of a support line.  You’ll notice as the stock collapsed in late 2007 it briefly paused right at the support level.



Once the stock broke through support it was all over.  Traders using technical analysis either sold their stock or established a short position. Think about how much money you could have saved… think about how much you could have made.

Using this simple technique traders not only look smart, but can become very, very wealthy.

Editor’s Note:  Greg, Brian and the rest of the team at Hyperion Financial Group wish you and your family a Happy Thanksgiving.  Eat, drink, and be merry!

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