With the explosion of web-based brokerages and the substantial volume of individuals trading from home, I am somewhat shocked at the mystery still surrounding technical analysis. Sure there is a technical analysis community on the web, but it pales in comparison to the rest of the trading world. Very few people start their trading venture with the idea of employing technical analysis. Traders usually begin working with fundamental analysis and stumble on technical analysis either afterwards... or not at all.
The most likely reason behind this is our exposure to mainstream media. Whenever you read the newspaper, the headlines are generally pertaining to quarterly earnings, mergers and acquisitions, or if we're lucky- a new scandalous court case.
I guess "CFO love triangle" will forever pull considerably better blog traffic than "bearish engulfing pattern".
So this ensures that the fresh new trader is pretty much prone to a distinct way of trading. They flip on the tv, read a pr release, maybe read some hyped up blog comments, and then start buying stocks. This is a risky way to begin, but for the new trader, we see it all too often. To make matters worse, fresh traders will usually move toward small cap stocks. The greater inherent danger is diminished by the thought of possessing a bit more stock and the desire for a gigantic return.
Ok, I understand that the true fundamental folks are actually doing a bit more than just watching TV and throwing a dart at the wall. But, the common trader just isn't. The newbie trader is trading on 'hot tips', blog posts, and generally speaking a whole lot of unreliable hearsay. The issue with this is glaringly obvious- the average new trader is the last guy in the queue to hear the important news headlines! By the time it finds its way to the public, it has already been whispered to family and friends, associates, and just about anyone who is anyone on wall street. I love examining a stock chart just after bad press is made public. What? The stock began to decline a few days beforehand? I can't imagine why.
And for the people who believe the SEC have put a stop to insider trading:
Whenever you're on a nice sandy beach and decide to take a dip in the ocean, make sure to not swim too far away from the shore - we would be so sad to watch you fall off the edge of the earth.
The opportunity for self-sufficiency is really what ought to make technical analysis so appealing to the newbie trader. You aren't at the mercy of the knowledge chain. Your number one techniques are your charts, and your charts can not tell lies. Indicators, candle sticks, and chart patterns are genuine and you do not need to panic about an unknown threat showing up at any minute. As soon as you learn a TA approach, it doesn't vanish and it can be utilized as you desire, for many years to come.
I encourage every new trader to give technical analysis a swing, even if it merely means executing a number of paper trades. Switching away from the press releases and depending upon your personal competency is a pretty amazing thing. I will never forget my very first technical trade. I found a breakout stock with a nice pullback as well as a little banner pennant. I chucked a little money at it and placed a narrow stop-loss. After just 3 trading days, I had brought in 40% and spotted my sign to sell. I brought in 800 bucks on a stock that I found with my own eyes, my own personal judgment, and all from the luxury of my very own home.
That's what I call some good ol' fashioned insider trading!