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Does technical analysis work?
I want people who actually implement this technique to answer this question. Can it really help you indicate good entry and exit points? Does anyone think its better than fundamental analysis? I want to integrate a little of both. But I’m going to start off with penny stocks traded on the major exchanges. I think that technical analysis would be the best strategy to profit from such volatile securities. And for my heavy traders, are taxes a bitch or make it not worth trading at all. I plan to use an IRA to shelter my my profits from taxes a bit, but I just want to know what other traders think.
I always say that technical analysis is the colors on the canvas of fundamental analysis. Overall it is of course fundamentals but then the short-term and mid-term trading can not be based on fundamentals because the inbetween movements even during a strong trend can be enough to wipe out your account.
Let’s take an example. Some of the very popular and commonly used technical indicators generate a buy signal. Now what happens- so many traders try to enter a long position because of that signal and the effect would be simple that the price will even go higher. So technical indicators or analysis is not a magic, it works because masses of traders trust on that.
A very important point to be consider here is that the same indicator may be generating a different signal on a different time-frame charts. A 15 minute chart may be saying entirely something else then a 4 hourly chart or a daily chart. Using a combination of longer time frame chart for entry exit becomes a key.
Hope this helps.
P.S.: Keep an eye on the common chart patterns and trend lines also.
Penny Stock Strategy