Fidelity Charting and Analysis with ActiveTrader Pro
11/16/2007 12:00 am EST
Colin began his workshop by discussing the history of technical analysis, its advantages and disadvantages, and told traders that technical analysis was a combination of science and art.
He stated that the most important aspect of technical analysis is that stock market prices discount all news.
He told his audience that markets have three phases—accumulation, public participation, and distribution. He said that his number one, Holy Grail technical indicator is that technical analysis is about building bullish or bearish trends through the use of indicators, to determine these phases. And if you can’t spot the trend, you can’t spot reversal of the trend.
Colin explained various types of charts used by traders, including the most basic line chart, bar charts, and candlesticks (which he prefers).
Noting that there will always be some variation in how different people draw trendlines, Colin said that the key is to layer enough tools to make you feel the trend is breaking down.
He discussed some of those tools, including moving averages, noting that the 21-day simple moving average is most sensitive to price changes, while the 200-day is the least sensitive. However, Colin commented that in a non-trending environment, oscillators, such as stochastics and RSI, are better to use than moving averages.
Colin noted that the moving average convergence/divergence (MACD) indicator is a hybrid between trending and non-trending indicators. He suggested that traders look for layers of bullishness to enter position. For example, a prime time is when MACD is at its lowest level, a bullish, oversold condition. Next, look at RSI and Stochastics to determine if they confirm the opportunity.
Another crucial component to setting up an analysis is the proper use of time frames. Colin explained that for example, one of the biggest mistakes that traders make is to plan to hold a stock for two months and just look at the two-month chart. Instead, you should look at a chart two-to-three times longer than how long you intend to invest.
Throughout the session, Colin illustrated his key points using Fidelity’s ActiveTrader Pro, showing traders how to get the most benefit from this software.