Do you just trawl through shares looking for patterns or are there computer programs that help with this? Also a little confused as to which indicators to use when. So a bit better informed but also lots more questions. Anyone got any suggestions how I should proceed from here?
There are computer programs and even websites that will look for patterns. ProRealTime can do it, Sharescope can do it, There’s another one off the IG Index site which can look for patterns too.
Scanning software is a tool that can be used to increase the number of potential trades you make by monitoring a wide range of trading instruments to identify those whose trading patterns indicate a likely reversal of direction, a break-out from a consolidation pattern, or a likely continuation of an existing trend.
The biggest benefit is the time saved in searching for patterns manually on individual stocks. By scanning thousands of stocks, commodities, currencies and other instruments such as indices, and identifying chart pattern as they form, scanning software lets you analyse a greater number of potential trades than you could manually.
Autochartist is a free scanning software package available through certain spread betting providers like IG Index. This provides you with a report on any company or instrument on your list that becomes a prospective trade as indicated by the software’s pattern recognition algorithms. The report tells which pattern is presently taking shape, its meaning (buy or sell) and reveals support and resistance levels to help you set stop-losses. The software will even provide automatically generated trading suggestions, with entry levels, stop-loss levels and take-profit levels outlined for your convenience. The suggestions need not be followed blindly; you can adjust entry points and stoploss levels based on your experience of how a particular stock behaves.
Most indicators use a combination of price or price and volume, for every time you can see an indicator showing a buy signal, the same indicator will prove ineffective for the next share, or the indicator will say sell sometimes when the share has dropped that much that you are at break even or even a loss since the same indicator said buy!
People get obsessed with shares following a moving average but fail to realise that by definition, it’s the moving average that’s actually following the share.
As for indicators and technical analysis techniques – best to find what works for you and keep indicators simple and try not to confuse with too many. One trader might use the MACD and RSI coupled with moving averages and volume. Another trader might utilise MACD and Stochastics as a side order while trading most things based on common sense (company fundamentals) and watching the support and resistance lines on the monthly, weekly, then daily candlestick charts.
As for patterns, always good to see if one is emerging as you flick through the charts. IG Index have a pattern recognition thingy which is sometimes worth a look but often better to see if you see something while chart flicking yourself.
Its also worth pointing out that everyone takes a slight variation of what works for them, at the end of the day, if it allows you to earn money, stick with it – if not tweak or ditch it.
Note: It also helps to create watchlists and set alerts. Alerts in particular are useful as you can notified via e-mail or sms when a stock hits a certain pre-determined level.