Chart Patterns
It seems to be common knowledge that one of the stock basics is that looking at the companies fundamentals is the only strategy professional investors will use to make money in the stock market. It isn’t, in fact trading in the stock market can be profitable even without checking a company’s fundamentals.
If you look at the major force behind stock movements it is not the earnings that the company makes. If a company makes money their stock does not automatically adjust for it and stay flat until they make or lose money again.
Instead supply and demand causes stocks to go up and down. As more buyers come into a stock the price of that stock goes up. As more people start to sell the stock then the price of the stock goes down.
That is why you do not need to know what the company is doing in order to make money in the short term. 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 many professional traders will use technical analysis to find chart patterns in the market and take advantage of them. Chart patterns are simply reoccurring patterns that pop up in the market. 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.
Investors can make a decent return by looking for these patterns in the market and trading them. 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 can take some work to get the hang of trading chart patterns correctly, but it can be worth it and extremely powerful if done correctly.
