There is a world of analysis with technical analysis that most traders never learn. What is this hidden form of technical analysis? Hidden behind all of the technical indicators or classic chart patterns. Strip away all of these forms of technical analysis and what are you left with? Price Action! Judy MacKeigan states in her article, “Price Action – The Footprint of Money,” that understanding price action enables a trader to minimize questionable entries and improve exits. Have you heard the following phrases:
- The stock is in an uptrend/downtrend
- There’s a head and shoulder’s pattern
- The stock is above the 50 exponential moving average
- The stock established a higher high / lower low
All of these are important identifiers to gage a stock’s performance. Yet, experienced traders can delve deeper to see how price is really moving. This can allow him/her to see the internal strength or weakness of the perceived trend. Digging deeper can provide a trader with insight into the possible fear, doubt or greed of the stock’s participants that created the price action.
To improve you edge, consider asking the following questions:
- What is the volatility of the underlying stock?
- Is the momentum increasing or decreasing?
- Is the current move of the stock stronger or weaker than the previous swing?
- Is the current volume above or below normal?
- How does a trader who is long/short of this stock at this price feel?
- Where are there stops (support and resistance)?
- How might the stock react if it moves beyond these points?
For example---today S&Pam 878 looked like a good place to short but the volume and price action said
no, volume always increased at 877 and slowed at 878 then backed down below 877 & explode up at 877--again and again.-------Just one example
