How To Select Stocks Using Technical Analysis

Even after you learn how to select stocks using technical analysis, you should not trade with real money until after you have practiced trading for awhile in a demo account. Using technical analysis on a stock chart can help you identify a trade entry, but once you place the trade you will also need to have an exit strategy. Practice trading in the demo account, and then after your technical analysis skills start to improve, begin to trade with a small amount of real money.

  1. Pull up a stock on a chart. To buy stocks using technical analysis, you may want to add some indicators to the chart. For example, on a daily chart of a stock you are interested in buying, add a 200 day moving average. If the current price of the stock is higher than the moving average, you may consider it to be bullish. If the price is below the average, it is then bearish. You could then buy the stock using technical analysis when the price rises above the 200 day moving average, since the momentum would be positive.
  2. If your charting software has a scanning tool, use it to identify stocks to buy. You can select stocks using technical analysis by scanning for stocks that meet a certain criteria. For example, scan for stocks that are higher than their 50 day moving average. Once you have a list to choose from, drill deeper to find a stock  you like, and then decide whether you want to buy it.
  3. Use your charts to buy stocks in a specific sector. For example, if you want to buy stocks using technical analysis for companies that are in the banking industry, pull up some bank charts and see how the stocks are performing. Apply a set of analysis tools such as moving averages, to help you determine which stocks to buy.
  4. Select stocks using technical analysis methods you have tested. If you want to trade a stock, look back on the past history of the stock chart and see how the price reacts to a set of technical analysis parameters you apply. For example, if a stock often rallies once the 5 day moving average crosses the 50 day average, the next time this cross occurs you may want to buy the stock.
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