Different Trading Methods Learned with a Stock Technical Analysis Course

Never in my life have I seen something like all the methods which are coming on stream for the use in forecasting commodity prices . There are literally hundreds of techniques and approaches . Here we'll only briefly look at a few .

Some are conservative and this author will place an asterisk beside the ones which he personally uses . Within this chapter 36 ways of forecasting prices are shared. This doesn't even include all the excellent tidbits that can be provided through a P&L charting technical analysis course.

(This author is very happy with P&L charting , for it enables this trader to quantify price action on a daily and intra-day basis . I know of no other system where more than trend or congestion the activity of the day means more in which prices are trading . Each day's activity through the use of P&L charting can show the evolution of a congestion or trend, sometimes within one day . )

Actually, I become quite irritated by traders that think that their resistance index, moving averages, point and figure, volume oscillator , god knows what else , - cash and basis, - are the only system which is effective. And, that the system that they are using is the only effective one and they don't have a use for seasonals, contrarian opinion, volume, oscillators, momentum indices, indices, other options , and seem to be blind to approaches evolved by others. ( Okay . I was able to get that out.)

These traders often don't use systems of their own and at least to me it seems , to be continually fighting the market . If you assume the trader has gone through a technical analysis course and has a trading plan incorporating several methods of forecasting prices and they are combined to help him profit from the market continually, then this trader is worth listening to . In the section on planning , this author will succinctly portray his approaches to the market place and you may get surprised at the flexibility of the author.

In order to analyze commodity price behavior on the market, there are 3 methods .

1. fundamental
2. mechanical
3. technical

FUNDAMENTAL

Often the market goes completely contrary to fundamental considerations due to various factors . Price movements in the long range are what the fundamental trader is interested in and need to be prepared to simply wait. Although they may deny it , but there are just too many external factors to be taken into account , like the response that occurs to influences that are fundamental, shown in fluctuations that occur each day. So there's no need to seek them out for analysis .

MECHANICAL

Methods that are mechanical use only price to decide on the action they should use and the trader doesn't have to decide on the action. There are three different methods.

1. chart
2. computer summaries
3. moving averages

Going through a technical analysis course will teach these rigid trading rules to be followed faithfully and in most cases it's based on a formula that is mathematical to predict the right time to trade . A computer uses the mathematical formula and tells you what it thinks that you should do . One of the great things about using the mechanical method is that you can back check it . Computer based methods are often biased towards trend analysis that is mathematical , using various trading systems, like moving averages . The computer can be used as a chart reader and all of the decision rules can be both formulated as well as tested.

TECHNICAL

In past decades, a lot of work has been done to get technical tools in place , - all with the aim of anticipating futures prices from trading statistics , i.e. O.I., price, and volume.

There are four broad areas of the technical approach .
1) patterns on price charts
2) methods that follow trends
3) character of market analysis
4) structural theories.
There are many different methods for charting . Here are the most popular:
a. bar charts for high/low/close each day
b. point and figure method
c. closing prices and their moving average

Technical analysis lists of various approaches can be put on the list by these technical approaches .
1) reading of tape or board
2) analysis of price charts - which includes the following
a. the price and its trends
b. resistance and support
c. consolidation ( continuation and reversal )
d. prices and the patterns and formations
e. rules of measurement
f. wave theory
3) open interest and volume analysis
4) other technical indicators that may include :
a. relative performance measures
b. periodic price performance study
c. study of opinion and contrary opinion

There will be more of this later .


Author:
Charles Drummond is a Canadian trader who has written nine books about trading and has created a stock technical analysis course called “Drummond Geometry.” His biography and further information about his work can be found at the www.drummondgeometry.com website.