Stock investment Directory to Technical Analysis
Trading from charts is a common method used by traders
and private investors to spot trends and new stocks to research and analyse.
Level 2 gives you real-time entry to the stock market order book. It gives you a view of flowing prices as trades are placed and enables you to make an informed decision on how you think these trades will move the price.
How to read Level 2 order books, what to look at and how you can use this information to help support your trading strategies? Please note that this is an introductory guide only from “Investor’s Guide to Technical Analysis” written by Company EYE.
One of the fundamental tenets of the technical approach is to grade the past. Many investment theories works on the premise that, history repeats itself, and that market price movement discounts all. Looking at past price action on an asset can give an idea as to how the price will perform in the future. Human behavior can, to a certain extent, be predictable given a satisfied set of circumstances.
This is how the technical concept can work.
Market forces control price supply and demand. Price is driven by people just like you and me who fall victim to to the same human emotions of hope, greed and fear as anyone else. Seeing where prior highs and lows have occurred in the past and how the market has behaved when at these levels can give an idea as to what might happen next. Investors could plan a number of strategies using -what if- scenarios.
Money management is a key element to an investor’s overall profitability. The passion to take a profit as soon as you see it sees many investors end up losing money in the long run.
Why is that you may well ask? Well, traders have a tendency to run their stop losses until they are executed but they do not do the same thing when they are making a profit.
Traders often see a small profit and they take it. If you work on the ground that you are right on 50% of investments made, then you will never make any profit.
When putting on an investment I always think, set on worst case scenario, how much money am I willing to lose on this trade? Starting at $1 a point a $100 loss will let me a 100 point move versus my position after I get stopped out. If it is $100 I’m willing to lose then I should be looking to earn between $200 and $300 profit. That will then mean I need a 200-300 point move in my favor. This way, based on a 50% success rate I will be making money.
For every element of risk, I should be looking to make at least double that on the profit side. It’s all about maintaining discipline if things are running well, as well as when they are running badly. And make no mistake, they will go badly from time to time.
One more way to lose money is the setting of nonrealistic stop loss and profit levels on unsuitable markets. A 100 pips stop loss on GBPUSD for example is quite realistic, but totally useless on something like a penny share. Use the price ranges of the last few days, and months, as a measure when setting stop loss levels.
Level 2
data is far more deep than Level 1 data. It gives entry to all the information given by Level 1 data, and also displays the in full depth of the market which is fundamental for an active trader. It additionally helps traders to reach a better opinion of the current trends in a security and which technical factors may be influencing the price.
Charting and Level 2
are essential tools for the serious investor. Using charting can give important clues about the long and short term supply and demand of a particular stock, while Level 2 offers important clues about the spreading of buy and sell orders at different price points as the market moves up and down. Level 2 is especially useful in showing the short term distribution of supply and demand, when charting offers insight into the historical price trend and its main levels.
We will takes you through some of the most regularly used strategies that traders employ to find potentially winning trades.