Waiting For Technical Signals

Sometimes you can be researching a stock and find it is a great investment.  By all fundamental means this stock should go up, but none of that matters unless the technicals tell you it is a good buy.

It can be very hard to resist buying something that should go up logically, but if it isn’t going up why buy it.  Every fundamental genius has picked stocks that should go up, yet get cut in half or worse.  Why is this? Because, they didn’t have a plan in place to tell them when to actually get in.

The major advantages of waiting for technical signals are.

1.       It Saves You From Huge Losses

If you catch every falling stock with good fundamentals around chances are you will get hurt a few time.  Just think if you were trying to catch a big company like countrywide or Fannie and Freddie.  You would have got murdered, even though they were undervalued and they where Big companies that nothing bad could possible happen to, right?

2.       Not Missing Much

I’ve heard that if you don’t get in at the bottom you are going to miss the majority of the move.   Well not really. Stocks don’t just bottom; they don’t just fall, fall, fall, and then start making new highs.  Stocks tend to stop falling and gradually start trending up.

When they do start trending up and giving buy signals that is when the real move is going to happen.  So fundamental investors might get in first, but is it really worth risking half your account to make an extra 5% before technical signals come?

3.       Cutting Losses Short

My favorite part of technical analysis is the ability to cut your losses short.  If you are an investor you just buy the stock and hope it doesn’t go to zero.  If you are a trader you can use technical analysis to teach you where to exit the stock and keep your losses short.

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

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