Why I Use Technical Analysis.

The best way to invest in the stock market is by using technical analysis and technical indicators.  And here is why that is so.

1.       Technical Analysis can give you specific Buy Signals.

When you are looking at the fundamentals of a company you can find stocks that are undervalued or overvalued, but that does not give you a good signal.  You might buy the stock at $30 and have it fall down to $15, not because it wasn’t a fundamentally strong company, but because it wasn’t done falling.

Technical analysis however can give you buy and sell signals that can allow you to find the best possible time to get in.

2.        It Can Limit your losses

If you buy and hold you can have enormous losses.  If you would have bought and held a big company like Lehman brothers or blockbuster you would have lost a ton of money.  On the other hand technical analysis gives you specific signals on when to get out.

If a stock breaks support it is probably heading lower, best to get out for a small loss.

3.       Situations change

I’m not saying that when you buy a fundamentally strong stock it is a bad investment.  But times change, fundamentals change, and technicals change, to keep up with it you have to be a little short term focused.

You don’t want to be the one holding onto a stock that is falling because when you bought it, it was a bargain. 

4.       Reward Potential

Technical analysis allows you to shoot for a higher return.  Who wants to get the average 5-10% return in the market when you can do many times that by trading?  

It also allows you to use things like options and margin into your trading because you have a better grasp of what can happen in the short term.

For more on Technical Analysis visit http://www.stocks-simplified.com/technical_analysis.html