By no means an exhaustive list, the following questions are a potential framework for anyone interested in trading stocks based primarily on technical analysis. Such questions are most suited to those looking to hold their investment longer than a day but less than a month. There are, however, plenty of questions below that are relevant to longer-term investors as well.
Technical Analysis of Stocks:
- How large is the spread? How much of an increase in share price is required before the stock is even in profit? Related to this, is the stock traded on the SETS or SETSqx trading system?
- Is the stock currently trending or trading sideways or within a range? If trending, what trend is the stock currently in? Uptrend or downtrend?
- Is the stock potentially at the beginning or end of this trend? Are there indicators that the trend is changing, such as a moving average crossover? How much space is there between a slower and faster moving average, such as a 10-day and a 30-day moving average?
- How many consecutive up or down days have there been recently? Does this equate to potentially buying at the end of a prolonged period of buying pressure or after a consolidation or pullback?
- Is the price approaching an area of support or resistance? How significant is this area? How many times has the price previously tested the area? Has it approached the area of support or resistance by way of a steep decline or incline, or in a more gradual manner?
- Is trading volume increasing or decreasing? Could this indicate a possible reversal in the trend? Was the recent move in price based on a decent amount of volume making it more credible, or on relatively low volume and perhaps not that sustainable? Conversely, was the spike in volume so large that a sharp reversal is likely to take place in order to balance out the forces of supply and demand?
- Looking at recent candlestick patterns, do these suggest buyers or sellers are currently in control of stock? Using these patterns, are there signs of price points being rejected, momentum faltering, indecision creeping in, or a possible reversal in play?
- Are there any upcoming trading or operational updates soon to be released? If so, is it worth staying clear until these are released to avoid any nasty surprises?
- How large is the stock’s Exchange Market Size? Could this be a problem when trying to getting out of the stock at a later date?
- What would be the exit strategy? Does this properly balance risk versus reward?
- How might emotions be getting the better of me at this time?
- Is it better simply keep the cash in the account for now?
This last question just about sums it up: would I be investing as it’s the best opportunity I’ve found so far, or would I be investing as it’s a great opportunity that aligns well with my trading strategy?
Based on this, why not create your own checklist of trading questions to ask yourself before making a trade?
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