Tools and Methodology

The market rises and falls in cycles, and recognizing some short-term, intermediate, and long-term cycles will help your analysis of the market. But cycles can be fickle and their phases do not always replicate themselves exactly. This is why additional methodologies must also be employed if one is to arrive at an accurate forecast.

A good understanding of technical analysis is required, including correlating breadth with price movement. Oscillators can be used to monitor both effectively, and they are especially useful in identifying trend deceleration which precedes reversals through positive and negative divergence. MACD and RSI are widely used, but my preferred choice of oscillators is a combination of the commodity channel index (CCI) and stochastic RSI (SRSI). But you may choose any of many others, providing you successfully acquire a thorough understanding of your choice along with its capabilities and limitations. I also use moving averages to verify what the oscillators are telling me.

As I mentioned above, a study of the Elliott Wave Theory is extremely helpful in understanding how the market is structured. Fibonacci measurements and Point & Figure charts can be used for price projection.

I consider P&F charting to be one of the best ways to analyze the market. It is extremely effective even though it does not include either breadth or volume. If I were limited to one charting methodology, this is the one I would choose.

Today, professional traders use sophisticated algorithms and supercomputers for making instant trading decisions, but these are not available to the average market participant, nor are they necessary to trade the market successfully.

All approaches to trading the stock market have their shortcomings, but in time, if you persist in your research, you will acquire the necessary ‘intuition’ to guide you toward making the right decisions.

Copyright 2012-2018 Market Turning Points - Andre Gratian - E-mail: info@marketurningpoints.com
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