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Author: rbnelson Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 6326  
Subject: Re: DNDN Date: 9/9/2005 1:35 PM
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"I'm pretty much avoiding TA at this point as I feel like it would get me in trouble....
...Basically I know I can't become a TA analyser in a few weeks or months, that's why I'm asking for a bit of insight and speculation on what is going on with DNDN.



You can gain useful knowledge in 1 or 2 nights so don't let the word "technical" intimidate you from learning some basics. Keep it simple and forget about all the fancy terms and indicators you hear mentioned until you understand those basics. (more on this later)

Start with trend and support/resistance.

Trend
Trend is the single most important concept behind TA and it's easy to determine with a glance. Learn to recognize the 3 kinds of trend - Up, Down, and Sideways (aka non-trending). You'll see why this last one is just as important when I mention moving averages. Just remember the old adage, "The trend is your friend". Don't try to buck the trend.
http://stockcharts.com/education/ChartAnalysis/trendlines.html

Support & Resistance
The ability to spot areas that have provided support or resistance to a stock can be immensely helpful. Stocks often bounce off these lines but occasionally they pierce them. This allows you to anticipate potential outcomes. For example, you might strategically place a stop order just below support to sell a stock if that support gets broken. Conversely, you might buy after breaking resistance and then place a stop a little below that old resistance line.
http://stockcharts.com/education/ChartAnalysis/supportResistance.html

You'll have a good foundation if you digest these basics before moving on. Look at charts you hear mentioned and try to identify these things. It's amazingly quick and easy once you get the hang of it. The beauty is that these same principles apply to long term traders and day traders alike. The only difference is in the charts they view, be it weekly, daily, hourly, or 5 minute charts.

If you decide to dig deeper, you can start looking at patterns and indicators next. Lots of free info on web and good books available.

Good Luck
RB


PS- TA Pet Peeve - Ever see a cheerleader pump a stock, claiming some indicator gave a buy signal?
They might even spout some TA "rule of thumb" that you've heard numerous times before. Oftentimes, these fools are mis-applying a rule of thumb entirely out of context. They've taken a pre-conceived notion of what they "want" the stock to do and then hung their had on a single indicator that supports that notion. A receipe for disaster.

An example: I've seen people buy into down and sidways trends becaue some cheerleader claimed a bullish crossover of the moving average (MA) was a buy signal. By learning the basics you understand the MA is a LAGGING indicator that CHASES a TRENDING stock up or down. During non-trending periods or following radical swings such signals tend to whipsaw investors. You instinctively know that trend is your primary indicator.

Moving averages (MA) are a useful TA tool.
Just need to know it's proper appliation.
http://stockcharts.com/education/IndicatorAnalysis/indic_movingAvg2.html

The lesson here...
1) Understand the basics and you'll know where these "rules of thumb" come from. More importantly, you'll know their limits and not apply them out of context.
2) Trend should be your primary indicator. Use other indicators to confirm the trend or as an early warning of possible changes to the trend.
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