Stock Investing Strategies

Stock investments

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Using Chart Patterns

It seems to be common knowledge that one of the stock market basics is that looking at the companies fundamentals is the only strategy professional investors will use to make money in the stock market. Not true, in fact many people make money in the stock market without knowing a lot about the company.

If you look at the major force behind stock movements it is not the earnings that the company makes. If a company makes money their stock does not automatically adjust for it and stay flat until they make or lose money again.

Instead the thing that determines if a stock will go up or down is supply and demand. If there are more buyers for a stock then it’s value will go up. On the other hand if there are more sellers then buyers then the value of the stock will go down.

This means you can make money by playing these individual moves without having to know too much about the company. In fact because the stock price often reflects assumptions, superstitions, and other human emotions using fundamental analysis may not work that great in the short term.

Instead many professional traders will use technical analysis in order to find price patterns and play off them. The price of a stock will ofte have reoccuring patterns, these are called chart patterns. These patterns tend to repeat themselves because humans do not change and their emotions will cause them to make the same mistakes over and over again. This is reflected in the stock price.

By identifying patterns and trading them an investor can actually do much better than the majority of buy and holders out there. Chart patterns also have a few other advantages such as letting an investor know when to get out when the pattern fails and what target to shoot for.

It can take some work to get the hang of trading chart patterns correctly, but it can be worth it and extremely powerful if done correctly.

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