Using Chart Patterns

Everybody seems to think that one of the stock market basics is that looking at a company’s fundamentals is the only way to tell if it is a great buy or not. Nope, in fact it is possible to make a lot of money in the stock market without actually knowing how to check out a companies fundamentals.

When you think about what actually moves a stock it is not earnings. If a company makes money their stock does not automatically adjust for it and stay flat until they make or lose money again.

Stocks simply go up and down because of supply and demand. As more buyers come into a stock the price of that stock goes up. On the other hand if there are more sellers then buyers then the value of the stock will go down.

This means you can make money by playing these individual moves without having to know too much about the company. In fact because the stock price often reflects assumptions, superstitions, and other human emotions using fundamental analysis may not work that great in the short term.

Instead investors use technical analysis to find price patterns in the stocks history and play off of them. The price of a stock will ofte have reoccuring patterns, these are called chart patterns. These patterns tend to repeat themselves because humans do not change and their emotions will cause them to make the same mistakes over and over again. This is reflected in the stock price.

By identifying patterns and trading them an investor can actually do much better than the majority of buy and holders out there. They can also help investors to create a target and figure out where to get out if the trade did not turn as well as it should have.

It may take some time to get the hang of investing with chart patterns correctly, but it can also be pretty powerful.