Stock Market Analysis

The return that a stock can provide is often predicted with the help of technical analysis. Stock market trading tips are based on technical analysis of various parameters.

Stock market analysis is science of examining stock data and predicting their future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term - once their projected profit is reached they drop the stock.

The basis for stock market analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement - company performance, the general state of the economy, natural disasters - are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.

Stock market analysis is not intended for long-term investments because fundamental information concerning a company's potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements. Most stock tips and recommendations are based on stock analysis methods.

Investors can take advantage of these stock analysis methods to track both upswings and downswings in price by deciding whether to go long or short on their portfolios. Stop-loss orders limit losses in the event that the market does not move as expected.

There are many tools available for stock market technical analysis. Hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic stock analysis methods of 'support' and 'resistance'. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.

Stock Analysis Charts & Patterns

Stock market analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period - weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.

A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish - the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish - the stock opened near the high and closed near the low. These are only two of the more than 20 patterns that can be formed by candlesticks.

When glancing at charts the untrained eye may simply see random movements from one day to the next. Trained analysts, however, see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no one single reliable indicator, but these stock analysis methods when taken into consideration with others, investors can be quite successful in predicting price movements.

One of the most popular patterns is Cup and Handle. Prices start out relatively high then dip and come back up (the cup). They finally level out for a period (handle) before making a breakout - a sudden rise in price. Investors who buy on the handle can make good profits.

Another popular pattern is Head and Shoulders. This is formed by a peak (first shoulder) followed by a dip and then a higher peak (the head) followed again by a dip and a rise (the second shoulder). This is taken to be a bearish pattern with prices to fall substantially after the second shoulder.

Other Stock Market Analysis Methods

Moving Average - The most popular indicator is the moving average. This shows the average price over a period of time. For a 30 day moving average you add the closing prices for each of the 30 days and divide by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer time spans are less affected by daily price fluctuations. A moving average is plotted as a line on a graph of price changes. When prices fall below the moving average they have a tendency to keep on falling. Conversely, when prices rise above the moving average they tend to keep on rising.

Relative Strength Index (RSI) - This indicator compares the number of days a stock finishes up with the number of days it finishes down. It is calculated for a certain time span - usually between 9 and 15 days. The average number of up days is divided by the average number of down days. This number is added to one and the result is used to divide 100. This number is subtracted from 100. The RSI has a range between 0 and 100. A RSI of 70 or above can indicate a stock which is overbought and due for a fall in price. When the RSI falls below 30 the stock may be oversold and is a good time to buy. These numbers are not absolute - they can vary depending on whether the market is bullish or bearish. RSI charted over longer periods tend to show less extremes of movement. Looking at historical charts over a period of a year or so can give a good indicator of how a stock price moves in relation to its RSI.

Money Flow Index (MFI) - The RSI is calculated by following stock prices, but the Money Flow Index (MFI) takes into account the number of shares traded as well as the price. The range is from 0 to 100 and just like the RSI, an MFI of 70 is an indicator to sell and an MFI of 30 is an indicator to buy. Also like the RSI, when charted over longer periods of time the MFI can be more accurate as an indicator.

Bollinger Bands - This indicator is plotted as a grouping of 3 lines. The upper and lower lines are plotted according to market volatility. When the market is volatile the space between these lines widens and during times of less volatility the lines come closer together. The middle line is the simple moving average between the two outer lines (bands). As prices move closer to the lower band the stronger the indication is that the stock is oversold - the price should soon rise. As prices rise to the higher band the stock becomes more overbought meaning prices should fall. Bollinger bands are often used by investors to confirm other indicators. The wise technical analyst will always use a number of indicators before making a decision to trade a particular stock.

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The Truth Behind Stock Market Trading

If you happen to watch a business show or business news on TV, you'd probably hear words or phrases like "stock market," 'trading," "stocks" or "stock market trading." What are these things and what is their significance? To answer your questions, here's an overview on what stock market trading is.

Definition

In simple terms, stock market trading is the voluntary buying and selling or exchange of company stocks and their derivatives. Stocks refer to the capital raised by a corporation by means of issuing and sharing shares. These are traded in a stock market just as commodities like coffee, sugar, wheat and rice are traded in a commodity market. The physical or virtual (as trading may take place online) marketplace for trading shares on the other hand is called stock exchange.

Trading Process

Stock market trading takes place as one sells his stocks and as the other buys them. Usually buyers and sellers of stocks meet in stock exchanges and there they agree on the price of the stocks. The actual stock market trading happens on a trading floor--the one usually shown on TV when news on stock market trading are reported. Here investors raise their arms, throwing signals to each other. That auction-like picture of a stock market trading is the traditional way stocks are traded. It's called "open outcry" since the traders cry out their bids.

Key Players in Stock Market Trading

Stock market trading participants vary from persons selling small individual stock investments to institutions trading collective investments, hedge funds, pension funds, mutual funds, etc. Big investors can be banks, insurance companies and other huge companies.

Importance of Stock Market Trading

Stock market trading is required to foster economic growth. It does this by helping companies raise capital or by helping them handle their financial problems. Stock market trading helps ensure that the capital is saved and is invested in most profitable business. Moreover, stock market facilitates the transfer of payments between traders.

Online Stock Market Trading

With the emergence and popularity of the Internet, almost everything can now be done conveniently online. You can go shopping online, join conferences online, read news online and communicate with business partners wherever you are. Even stock market trading can now be done virtually and this has made entering into a business much easier for anyone interested. Aside from conducting stock market trading over the Internet, you can also conveniently check status of your investments online.

The benefits of online stock market trading are just endless. Aside from the above mentioned, choosing where to invest is also much easier online. You can find virtually all kinds of stocks over the Internet; however, it would be best to invest in stocks with moving prices to ensure profitability in the long run.

Disadvantages of Stock Market Trading

One of the greatest drawbacks of stock market trading, whether online or not, is its lower leverage compared to other forms of trading like Forex trading. Also, you cannot easily short sell stocks as it takes time for stock prices to go up. This means that increasing your profit may also take time.

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An Overview on Reading the Stock Market

A lot of people are familiar with the stock market. However, most individuals remain unfamiliar with terms like "stock", "buying and selling of stocks", "stock market charts, and "bulls and bears". Even the term "stock market" itself remains a point of confusion for those who don't have financial expertise. There are times when they would scratch their heads in bewilderment whenever they hear their neighbors complain about the low prices of stocks on the market or if a colleague suddenly gets a huge windfall from his stock market investments. What most people are aware of is that the trading on the stock market can lead to booming or bankrupt businesses if these companies have played the "stock market game" correctly. Simply put, stocks are representations of the company's assets and profits. If the company makes a profit from the stocks, this value is divided yearly among the shareholders in the form of a dividend. As an example, if a company makes a profit of $100,000 this year, and it has 20 shareholders holding 1 stock each, the shareholders would receive a dividend of $5,000.

The Stock Market Defined

The stock market - also known as the "stock exchange" - is a financial institution wherein licensed brokers trade company stocks and other securities - including privately traded securities - that are approved for trading by the exchange. Exchanges can occur physically or virtually. Brokers buy and sell stocks based on the needs and requirements of the people and/or companies they represent.

The two types of stock markets are...

• Primary Stock Market = for trading of Initial Public Offerings (IPOs) and other brand new issues by sellers and buyers

• Secondary Stock Market = for trading of existent stocks in the market by buyers and sellers

Common Stock Market Terms

Stock market "lingo" is nothing to be confused or feel daunted about. In order to understand the trends in the stock market, you need to learn certain commonly used terms and be able to assess stock market charts. By taking the initiative to learn the basics of the stock market, you will be transformed into a knowledgeable investor and be able to make good stock decisions.

Let us take a look at some of the terms that you will most likely encounter on the stock market...

Stock price = This is the value for which stocks are bought and sold. Factors that directly impact on stock prices are the position and performance of company issuing the stocks. Another term related to the stock price is the market capitalization - or simply market cap - which is the stock price multiplied by the number of shares. Other factors that affect stock prices include current performance and expansion and future growth. Let us put it in simpler terms. If a company is doing poorly in the stock market, their stock prices decline in value. In contrast, if these companies are performing well, you will see the stock prices shoot up in value.

Reading Stock Market Charts = These charts and quotes provide the current status of the performance of the stocks. These stock changes can be reflected as "day-to-day" or "intra-day" depending on the trading on that particular day.

52 Week High and Low = This consists of stock data over a period of 52 weeks. On the date of reporting, you will be able to see the stocks with the lowest and highest prices during this 52-week period.

Type of Stock = Preferred stocks would have specific symbols written after the company name. If no such symbols are indicated, the stock is a common stock.

Ticker Symbol = Every company trading on the stock market is assigned an abbreviation or specific letters. These ticker symbols are used so that all the companies can be listed on the ticker tape. All the major stock exchanges in the U.S. - such as the New York Stock Exchange, NASDAQ, Dow Jones and American Stock Exchange - restrict ticker symbols from 1 to 4 letters only (similar to the heraldic symbols in the British exchanges). Any new companies should register their own symbols, which should be different from the symbols that are already being used by other firms. Some examples of ticker symbols include AAPL for Apple Computer Inc. and INTC for Intel. You will probably observe that some symbols would have a period followed by 1 or 2 additional letters. One good example is BRK.B. This means that the stock is being offered by Berkshire Hathway Company and it is a lower priced "Class B" stock.

Dividend Per Share and Dividend Yield = On a stock market chart, a company is said to be issuing dividends if both of the columns with these headings are filled up. You compute the Dividend Yield by dividing the annual dividends per share by the price per share. This dividend yield means that the shareholder has a return on his dividends.

Price/Earnings Ratio or P/E Ratio = This value is computed by dividing the latest stock price by the average earnings per share for the last 4 quarters.

Trading Volume = Total selling and buying transactions that have taken place during the day.

Closing = Last quoted price of the stock at closing day of the stock market

Net Change = The difference in stock prices since the last change that occurred. Net Change enables you see the direction where the stock price is headed - with a plus symbol for a positive direction while a minus symbol for a negative direction.

Bulls and bears = The term "bulls" and "bears" are economic indicators for the stock market. You have a bull market when the values of stocks go up. This is an indicator of good health in the economy. In a bull market, investors can stand to gain substantial profits from stock sales. In contrast, bear market is indicative of an economic downtrend so that investors need to sell their stocks before the prices drop much lower. During a bear market, a lot of investors and businesses tend to lose greatly if they have not been quick in buying good stocks and selling those shares before they dropped fast. The general rule of thumb to follow in the stock market is to buy when prices are low and sell when prices are high (before the prices decline.)

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All stock purchases are transacted by bringing money from outside the market to trade with those who own stocks and would be willing to leave the market, becoming non-owners, if they are paid their price. The sellers exit the market, even if only temporarily, with the money that was never in the market. Trading your current surplus labor for stocks will only net you a gain if in the future someone else is willing to trade you more surplus labor for the right to own your stocks. Your money is not in the stock, bond, or commodity markets; it is in the pocket of the person that sold you stocks, bonds, or commodities. Both today and in the future, the un-inflated value of stocks is the fire-sale value of equity in buildings and equipment and resources that are not collateral for loans and bonds. Everything else is a mirage, appearing as inflated equity created by too much surplus wealth being exchanged (gambled) for control of corporations and their future profits. This "air" in the market is why price changes can be so volatile; small changes up or down on small amounts of a company's stock are leveraged to effect all of its stock by and because of investor ignorance.

Let me digress a moment to another discussion of money, in the realm of buying and selling as done in the stock market. All money available to purchase any asset is pocket money, in the context of liquidity. It is not invested in stocks and bonds, or real estate, or gems and precious metals, or stamps and rare coins. Money simply moves from one pocket to another (from one bank account to another), in trade for assets or consumption of goods. Those who purchase stocks and bonds, or real estate, etc., take money out of their pockets to effect a purchase, while those who sell stocks and bonds, or real estate, etc., put money into their pockets to effect a sale of those goods. The key to the future value of any commodity, or stock, or piece of land bears directly on the amount (and trade value) of pocket money available at any given future time. These markets are devoid of any value other than future demand to own stocks, bonds, commodities and real estate; and that demand will depend on the mount of pocket money available for investment or speculation. The money is always outside the markets because it only moves from one pocket to another, wherein the last pocket always belongs to someone who is NOT IN THE MARKET.

While investment in the stock market is considered to be a capital investment in our productive economy, it very seldom is. If you are able to purchase new stock directly from a corporation that will use that money to expand their productive capacity, then you are investing capital in our economy. But when a stock is sold the second, third and so on... times, the new owner is not investing in that corporation. The vast majority of stock trades are done between one investor-speculator and another, trading places between would-be owners and those who would rather not be owners. As far as our productive economy is concerned, these dollars serve no useful purpose. They create no jobs, build no factories, nor do they feed or shelter anyone, except stockbrokers and speculators. The taxes paid on gains are offset by the deductions taken on losses. Brokers and the people that keep these markets going are all on capital welfare. They facilitate these gamblers in transferring money and stocks, and charge a fee to do so. But unless they are helping a corporation issue new stock, they are just recording the economically irrelevant bets of their customers. Stockbrokers and Bookmakers (that manage bets on horses, or sporting events, or whatever) are the same animals in twin professions.

Many baby-boomers are being encouraged to invest in personal savings accounts like IRA's to benefit their uncertain retirement. And many of these IRA's are invested in the stock market, bringing additional dollars to the New York style gambling industry. This money is simply inflating stock prices and giving the illusion of equity growth. Remember, money put into an IRA or 401K, to buy stocks and bonds, is going into the pockets of the sellers. To reap your reward as a seller when you need retirement money, you are betting there will be more buyers in the future willing to pay more to own your stocks and bonds than was the case when you purchased. Such reasoning is how pyramid schemes operate. The boomers are buying into a pyramid scheme that is shrinking at its base (without exception, all pyramid schemes fail); the following generation will be too small in population and earning capacity to bid up prices and produce a profit for the boomers to retire on. The generations following the Boomers are going to have their income taxed heavily to pay the Social Security and Medicare for the Boomers and thereby will not have the pocket money to buy into IRA's and 401K's; causing those markets to fall catastrophically in value and bankrupt many Boomers.

Consider also that most 401K plans are not invested in industrial stocks and bonds; rather they are only speculating on the profitability of a mutual fund company, i.e., the stock you own and will need to sell at a higher price to have retirement income is your investment firm's stock, and no other. Since your fund managers must buy and sell stocks and bonds, etc. to make a profit, similar to all other mutual funds, you can only come out a winner if other 401K speculators come out losers. The Boomers will either suffer losses that will destroy the value of their retirement investments, or they may be forced to keep their capital tied up in owning stocks and bonds and only receive relatively small dividends, without ever being able to recover and spend their invested capital.

The game of win or lose goes like this. If investor-A buys some stock costing one hundred dollars per share and it rises in value to one hundred ten dollars per share, at which time investor-A sells to investor-B; investor-A has made ten dollars per share profit. If this stock continues to rise to one hundred twenty dollars per share and investor-B sells to investor-C, then investor-B has also made ten dollars per share profit. If this stock falls back to one hundred dollars per share and investor-C sells this stock, then investor-C has suffered a loss exactly equal to the previous gains. Similarly, if this stock had dropped for investor-A & -B but rises for investor-C, the initial losses would equal the final gain. For every gain their will ultimately be an equivalent loss, and for every loss their will be an equivalent gain, the books are always balanced. Brokerage fees, taxes and inflation operate to guarantee that in the long run, less money leaves these markets as investor profits than comes into them as gambling wagers. Over time those who profit from these markets do so only by losses incurred by others. Periodic panics and crashes in these markets balance the books by creating the losses that equal the year over year gains for the years between such panics and crashes.

The featuring by the news media, over the years, of catastrophic losses by certain international banks, or certain brokerage firms, or individual investors, shows the general ignorance of how these gambles work. If we heard news of a poker game wherein three players lost $50,000 each, but a fourth player won $150,000, we would not dwell on the losers and the tragic consequences of their losses, without mentioning the winner. More likely, we would focus on the winner and attempt to associate ourselves with such winners, and generally ignore the losers. In the financial markets losses may be tragic to one person or corporation, but on the principle that gains equal losses, both are irrelevant to the market and to the economy. If governments, market directors or investor-speculators alter their market strategies based on someone's losses, they are forgetting someone else's gains, implying that they do not understand these markets and ought not to be in them. Reporting gains and losses in any of the markets is a camouflage of fraud to keep unwary investors in the game. These markets are a zero net sum, so gains and losses are irrelevant for society overall. But since these con-games require continuous inflow of surplus wealth to support brokers and investment bankers, there is an industry of reporting and describing activity in these markets that operates on a foundation of collusion of ignorance and obfuscation of facts. In this ever-changing world investing is nearly dead, so happy speculating.

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Investors, Speculators and the Stock Market - Part 3

Due to its length this article is being published in two parts; Part_1 is available on this same site.

If you find it hard to compare the gambling in Las Vegas with the gambling on the New York Stock Exchange, consider the activities of each. In Las Vegas you enter a gambling casino, exchange dollars for tokens or chips and proceed to wager that certain events will occur according to your predictions. When you put money on a number at Roulette you are predicting (or at the very least hoping) that the marble will stop on your number. When you place bets in a card game you are predicting that your cards count higher than others' cards, in your game. When you put coin or tokens in a Slot machine you are predicting that the machine's parts will randomly align themselves in such a way that more money will be returned to you than you will put into the machine. All of these activities are called gambling because you are spending and receiving items of value, money; and because you may only do so legally if you cannot accurately predict the outcome of your wagers. For every winner there is a loser, if the house is the winner then the customer is the loser, and vice versa.

If you choose to place wagers on the New York Stock Exchange, you must also place money at risk and presumably be as ignorant, or at least as deluded, as other players. First you hire a broker and put money into an account, from which your broker can deduct funds when you wish to buy stocks, and into which your brokerage can put your winnings, should you be so lucky. You may contact your broker and tell him or her which stocks you would like to buy, and how much to pay. You now own a piece of some company, and your voice counts in managing your corporation, according to the percentage of ownership in your name. Your bet is that your workers and management team are going to out-produce the competition, make greater profits and return a larger dividend to you. If your corporation does do better you not only win with dividends, but your shares of stock are likely worth more than you paid. Other potential players will see the stronger position of your corporation and some of them will bid more money to buy into your game. If you should decide to sell your stock allowing someone else to take your place and risk, you will receive more money than you paid. This profit is called a capital gain.

If you guessed wrong and your corporation operated inefficiently and lost money, you would not get a dividend, and your stock might drop drastically in value, because more owners may want to sell than there are would-be owners waiting to buy. Sellers are forced to accept less and less for their stocks, potentially resulting in great losses for some. For every one who wins someone else has lost. The big difference in these two gambling industries is the length of time between wagers and the determination of profit or loss.

Brokerages that facilitate stock, bond and commodity trading, operate in a similar manner and purpose to companies that operate gambling casinos. Brokerages do not care if the markets go up or down, so long as trades are being made. The brokerages charge a fee for each trade; the more trades, the more income for brokerages. In gambling casinos the odds of winning slightly favor the casino owners when one bets against the casino; and the casinos charge players a fee for the use of their facilities when players gamble with each other. The casino owners' interest also lies in the volume of gambling; the greater the activity, the greater the income for the casinos.

Brokerage firms reap their wages and bonuses through fees from the number of stock, bond, or commodity transactions occurring. If the markets are sluggish, with relatively little trading going on, brokerages can buy and sell stocks and bonds with other brokers, kiting stock, bond and commodity values and thereby creating a mirage of investment activity. This practice is very old and is called, "Churning the market". This is principally done to provide them with cash flow and protect their stock, bond and commodity portfolios, since their net worth (and the value of their own stock) is tied to cash on hand and market value of their investments. This churning hurts on-going investment activity, because it prevents the markets from moving lower and allowing investors an opportunity to purchase stocks, bonds and commodities at a true market value.

In the United States there are three principal markets to buy and sell stock. The New York exchanges are the primary market, and the over the counter exchanges are the secondary market (NASDAQ). There is another exchange market for stocks and bonds that is referred to, as the "Third Market". The third market is a partial joining of these two markets to facilitate the selling of large blocks of stock. Which if they were offered through an exchange to individual investors would crash that stock's value, along with its paper equity, and could create large declines in the overall market if not panic and chaos.

The third market is composed of brokerages that will buy large offerings individually, or in concert with other buyers, at a set price and then resell it in small lots in the usual manner. Though the set price for these large sales is determined by prices set at auction in the exchanges, this stock is not being auctioned. It is being sold in a manner contrary to the rules of the exchanges, that all stock sales be offered in public via an auction to let buyers and sellers determine market price and value. The seller of a large block of stock is guaranteed, through the third market, to receive the highest possible price for such stocks or bonds, at the expense of unwary buyers in the regular auction markets. One person's loss is another person's gain in these markets. In the public exchange markets, if a large block of stock is offered at a price no buyer is willing to pay, it will then remain unsold or only a portion of it will sell. If it must be sold, then the price must drop until buyers agree that it has dropped to its proper value, according to supply and demand in a free market. The third market is just a creation of a controlled market to allow brokerage firms to protect the value of their own holdings and to prevent investors from profiting when other market-players' must sell.

The exchanges could have barred the sale of large blocks of stock, or limited the size and timing of all sales, but this would obviously not be a free market with prices determined by supply and demand. So they maintain the illusion of a free market by withholding knowledge and access to participate in sales, such as the third market, from the public. If the third market were a small market, as compared to the exchanges, little harm would be done to investors. But the third market is not small, it is very large and very controlled to maintain higher prices, requiring individual investors to pay more than a free market would require for many stocks and bonds.

Consider a stock market very different from the market that has developed; a new market, where brokers facilitate buying and selling but own no stock themselves. A market where short selling is illegal, and where speculation is suppressed by not permitting a purchased stock to be resold in less than 30 days without a significant penalty tax paid to the federal government. Similarly for bonds, the sale of a bond would be final, until redeemed at maturity, or a penalty greater than its lifetime yield would be assessed. And in the commodity markets only those who produce commodities could sell contracts up to the amount they can produce, and only those companies that process and consume those commodities could buy contracts, up to the amount they have a track record of consuming.

Markets with these restrictions would require different corporate structures. Workers and communities would be the largest and most stable investors in the companies they worked for or the communities they are located in. The raising of capital and investment in production would follow the path of vested interest. Which would require most corporations to be publicly owned and operated, for the benefit of consumption without debt.

Market investments like stocks, bonds and commodities are considered to be barometers, gauging the health of our economy. Market watchers are always trying to forecast future economic activity based on current activity and market trends. Trends and market activity, however, are no better barometers to predict the future than reading tea leaves. Economic activity is much more a barometer of what the markets should do than the other way around. This money circulating in these markets has no direct bearing on general economic activity associated with the production and consumption of goods and services.

Because most stock trades are between one investor and another or one speculator and another, wherein the company that issued the stock is in no way involved, the stock market could go out of business without having a catastrophic economic impact on society in general. Certainly all of the people employed in operating the stock market would be devastated, and the general misunderstanding of how these markets operate would cause psychological panic amongst other industries and the public in general, which could lead to a complete economic collapse. But such a collapse would be as unnecessary as having our whole economy collapse if Las Vegas were put out of business by a major earthquake. Certainly the workers and owners of all of the casinos and related businesses would be financially distressed and have to seek other opportunities. But the rest of society would not need to go into a panic. We deal with catastrophic weather and geological events affecting our lives and economy every year, and we take them in stride. Problems in gambling industries should never be perceived as causing negative economic impacts. A panic in the stock market could only spread to our productive economy if people are ignorant of what the stock market represents and how it operates; but then if people knew how these markets functioned they probably would avoid them altogether.

The stock market is very much a balloon market, because it contains so much air (presumed equity). For example, consider a small stock market with just ten companies. Each company has sold 10,000 shares to the public, and each company's stock is currently listed at $10.00 per share. Since stocks usually sell in lots of one hundred shares, each lot is worth $1,000.00. Each company's total shares are worth $100,000.00; making the total value of all ten companies stocks to be $1,000,000.00. If one trader comes into this market and offers $11.00 per share to purchase one hundred shares of Company-A stock, then he or she has paid a total of $1,100.00, but has only increased the real equity of that one lot of one hundred shares by $100.00. The market, however, reports that all 10,000 shares of that company's stock are up and valued at $11.00 per share. One hundred dollars has created $10,000.00 in presumed equity, for this one company's ten thousand shares of stock. All of that increased value is a fraud, because the original $100.00 in additional value went to the seller, and is in no way further associated with Stock-A. Now consider that if the seller of stock in Company-A takes the $1,100.00 and invests it in one hundred shares of Company-B, another $10,000.00 in air is created. Continue this from B to C, C to D, etc. until the seller of Company-J's stock winds up with the $1,100.00 and is out of the market. All ten companies' stock has gone up ten percent and the $100.00 in additional equity has exited the market. One hundred dollars has created $100,000.00 in paper equity in just ten trades and is out of this market, as is all money invested in stocks, it is always outside the market, the seller has the money, but no stock. Obviously, the real stock markets are much larger, with millions upon millions of stock trades daily. This unreal and presumed equity can certainly be taken out of the market in a similar manner, since so much of what is reported as equity gains is only air.

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Investors, Speculators and the Stock Market - Part 2

The greatest challenge to investors and speculators is the legal requirement that dealing in stocks and bonds must be a gamble. Forehand knowledge of information that will affect the value of a stock or bond is illegal, and is called insider trading. The government requires that all potential-players in these markets be equally informed of the present and equally ignorant of the future. Though there is great diversity of opinions about the meaning of corporate data, still all players must have equal access to that data.

It used to be that every stock trade was done face to face and that a particular stock would only be traded at one exchange. Today stocks are traded 24-hours a day; over the phone between customer and broker, via computer between brokerages, and on numerous stock exchanges around the world. When stock trades were made face-to-face, trading was relatively slow even at its most volatile times. Now that brokerages can buy and sell stocks via computer, orders to buy and sell can be processed with lightning speed.

Many speculators automatically offer their stocks for sale if the market should decline a certain amount, while others have standing orders to buy certain stocks if the market is rising. Standing orders to buy or sell at certain price levels tend to exaggerate the volatility of the market. They cause a rising market to rise further, or a declining market to fall further, than they would have without speculative standing orders.

Many investors and speculators buy stocks on margin (partial payment), paying only a portion of the cost. If the market drops far enough that their down-payment equals the loss on their stock, they then must immediately send more money to the brokerage firm that they bought it through. If investors do not respond to the margin call for additional money, their brokerage will sell their stock at any price, without their permission, and send them a bill if the brokerage had to pay the difference between their customers' down payment and the selling price. In such a case the investor has not only lost their stock or bonds and a chance to recoup their losses when that stock or bond regains market value, they may be saddled with additional debt to pay for losses beyond their control.

While your broker is trying to get you the best deal available, you are actually competing with your broker's company to buy and sell stocks. Brokerages invest heavily in stocks, bonds and commodities, speculating for their own profit. So if you want to sell a stock that their chief strategists believe is going to go up, they will not necessarily inform you. More likely they will buy your stock from you and be quite happy to have you contribute to their welfare. Likewise, if you want to buy stock that they believe is going down, they will tell you so if they don't own any, or they will sell you theirs and remain happily silent. The real competition between you and your brokerage firm happens when you both want to buy or sell. In that case your brokerage will sell or buy a number of stock orders through the same specialist at the same relative time, and yours will be the ones with the least gains, making the ones with the most gains their trades. Brokerage firms look out for themselves at everyone's expense, including their valued customers.

Each stock transaction determines the value of all of the stock for a company. When one trade of 100 shares, usually the minimum amount which can be bought or sold, is made at a price above or below any current price, the value of all of a company's stock is considered to have risen or fallen by that same amount. And though many investors do not buy or sell on a daily basis, they still watch their stocks and note how their perceived net worth has increased or decreased as their stocks move up or down. The greatest of fallacies is the belief that one's stocks are worth the prices quoted daily in the paper. Only a small percentage of any company's stock needs to be placed on the market and sold at any price to wreak havoc in the value of all of that particular stock. A company's stock is worthless as soon as investors are unwilling to own all of it. By this I mean, if more of its stock is offered than the market can find buyers at any price, the value of all of that company's stock falls to zero, (no demand, no value).

All stocks are in a false equilibrium day to day. Barring some catastrophe in the world in general, or some segment of our economy in particular, a stock's equilibrium is established by its previous day's activity. Each daily close of the markets establishes a new point from which gains or losses are measured. But since it is buyers and sellers who define this equilibrium, the ratio of buyers to sellers is very important to the value of a company's stock.

If there were an infinite number of buyers and sellers available to a market, it would be fairly stagnant and nearly impossible to crash. But there are only a finite number of buyers and sellers; both sides draw from the same pool of speculators and investors. Whenever the market falls, it is likely that many would-be buyers will become sellers, and many who were on the sidelines will step in to sell their stocks and avoid further losses. If sufficient pressure to sell stocks at any price occurs, even if only in one sector of the market, it can attract cash from other sectors, consume that capital and thereby reduce the cash available to support values in other markets. Pressure to sell for lower prices in one market can produce a downward momentum for all of the markets. As new prices are established at lower levels, equity is lost across the board, both for sellers and for owners who remain on the sideline hoping for stability. With any major loss of equity in one market, those needing to cover their losses may transfer or borrow capital from other areas of the economy to balance account sheets at brokerage firms. The loss of capital to investors in those other markets will cause prices to fall for them as well.

In 1987, many small investors could not get out of the stock market before being wiped out. This was not only a result of it being impossible to get through to your broker by phone, since many thousands of other investors were doing as you were. Your broker's company had two things to gain by your losses. It could sell its own stock first and consume what little demand may have existed to buy stocks, and it could keep your stock off the market to prevent prices falling even lower. When supply of anything exceeds demand, prices will fall relative to the available surplus and any demand to consume that surplus.

There is a method of selling stocks and commodities in our economy that is called selling-stock-short or short-selling. Short-selling is a way of creating a false surplus of a stock or commodity. In essence we borrow stock from some investor, through a broker, and we sell that stock to a third party because we believe that its price will fall in the future (we are selling short because we are short the amount of stock that we have borrowed and sold). At this point all we have done is sell something that does not belong to us, making neither a gain nor a loss. If our gamble is right and the price of that stock or commodity does fall, we can then buy that stock back from a fourth party at the lower price and return it to the person or brokerage we borrowed it from. Because we do not pay anything to borrow the stocks, our profit is the difference between the higher price we sold and the lower price we paid to have them returned to their original owner.

The history of selling-short is the most calamitous in all of our economic history. One hundred years ago professional stock traders were ruining each other and many sound businesses by selling large amounts of a particular stock short. Then they would put out rumors that caused other investors to also sell that stock, driving the price very low, which would allow them to make large profits by buying back that stock at a lower price and return it to the brokerage they had borrowed it from. Other traders who owned that stock on margin might go bankrupt, unable to cover a sudden and unexpected loss due to unfounded rumors. The company that issued that stock may have other shares held as collateral for expansion loans. If the price of the stock should fall, the loss of price equity would force banks to call for other collateral, or they might seize property, take over a company's management and possibly liquidate it. If a company had cash assets that would allow it to buy up these short sales as they occurred, it would not only support the price of their stock, but as less and less stock was available for investors to own, the price of a company's stock could rise. The short-sellers would eventually have to buy stocks to replace those that they had sold short. This would create demand for a reduced supply, causing the price to rise and possibly catastrophic losses for those who had sold short. The Japanese do not allow selling-short in their markets, and for good reason. There have been many stock panics in our history and all of them have been worsened by selling-short.

Consider a long time investor-A that owns stock outright and is as much concerned with dividends as stock prices. If this stock is managed by a brokerage for that investor-A; the brokerage could loan that stock to speculator-B, who would sell it on the market to speculator-C. If investor-A did not want to sell, there would be less stock available to the market and the price would remain higher; forcing speculator-C to offer a higher price to entice an investor to sell some stock. But since speculator-B is borrowing and then selling this stock, he is helping his own gamble by adding this borrowed stock for sale to the market, thereby encouraging a price decrease simply by increasing supply. If the price does fall, speculator-B has made a profit when he buys stock from investor-D (who could actually be investor-A dumping the stock to avoid further loss) and returns it to the brokerage. In essence the brokerage has aided and abetted a loss to one of its investor customers, while helping a speculator customer profit. Selling-short does not increase investor equity; however, it does reduce it by the amount of profit made by the short-seller.

So why do stockbrokers offer short selling? Simply to make money; stockbrokers earn a fee each time stock is traded. They do not like investors who purchase stocks and then hold them for years to earn dividends. They want the fees associated with trades and market volatility, and they are happy to help speculators hurt investors. If they can they will turn all investors into speculators.

There is a big difference between investors and speculators. Investors put surplus money in the stock, bond and commodity markets for the long term. They hold stocks for years to receive dividends as a return on capital investment. They buy bonds and hold them to maturity and receive interest payments. They buy commodities and use them to manufacture goods and provide foodstuffs. While the speculator is a pure gambler, buying and selling stocks, bonds and commodity contracts based on price changes, seldom holding them to receive dividends or interest. Only a speculator would sell a stock or commodity short. Only a speculator would buy or sell a stock index contract, betting that the market as a whole will go up or down. Only a speculator would take an option to buy stocks, or sell stocks, rather than commit fully.

As more money flows through the markets to speculate in price changes rather than dividend or interest returns, the volatility of price changes will increase. When earnings reports are low or below market expectations, many stocks fall in price rapidly and somewhat drastically as speculators dump those stocks knowing that with bad reports other speculators will sell such stocks and others will temporarily choose not to buy. In a non-speculative market a stock would drift lower in price, or stagnate for some time. So speculators will move out early, and even sell the markets short to accelerate a decline brought on by perceived weakness, and reap profits for themselves thereby.

Not everyone in the markets is a speculator. If this were the case we would have daily panics and weekly chaos. But the amount of activity in the markets that is strictly speculation is increasing, and we can see this in the changing relationship between dividends and prices. How can a stock, which returns a 4% quarterly dividend to a market that was expecting 5%, have its price drop 5% or more in one day? In the opposite case, the stock price might rise 5% in one day on a dividend of only 1% above market expectations. Investors would not sell or buy enough stock on this information alone to make any noticeable price changes. Only speculators can do this, because speculators are working a pure gamble, based on near term strength or weakness of companies.

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Investors, Speculators and the Stock Market - Part 1

Virtually everything we buy and sell, both wholesale and retail, is auctioned to the highest bidder daily; demand for goods and services are generally satisfied by competitive auction. The foundation of Capitalism is the auction process of exchanging property. The auction is the only manner in which private property and labor can be exchanged for the highest contemporary value. Every owner desiring to sell a product will make it available to all potential buyers and strike a deal with the highest bidder.

The auction format of buying and selling surrounds us. Even our daily purchases at the supermarket or department store are an auction. Buying or not buying different goods causes prices to fluctuate in response to our demands. When we want more of certain goods or services, the asking price is raised until the competition amongst those who want to consume does not increase above the available supply. And similarly if demand falls off, prices will have to fall or potential customers will continue to leave goods on the store shelves. Our willingness to consume or not consume throughout the year is our expression of our bids for goods and services.

A stock market is an auction where representatives (called specialists) of stock brokerage companies meet to buy and sell stocks (corporate equity). Brokerages also have employees and/or self-employed stockbrokers around the country who receive buy and sell orders from their customers, and relay those orders to their exchange broker who alerts the specialist that is responsible for the particular stock that is wanted, or offered for sale. The specialist then proceeds to the area of the exchange where that stock is traded and offers to buy or sell your stock, as the case may be, by dickering with specialists from other brokerages. The buying specialists group together, facing the selling specialists, prices to sell are announced and bids to purchase are made, with each side making some adjustments until trades are made. If you the customer have offered to buy or sell at the best auction price available at that time, your order will be executed and you will receive a written record of that sale.

Originally stocks represented ownership of a company in the sense of equity, wherein the original sale of stock was insured by the collateral of manufacturing facilities and equipment, so that in the event a company went bankrupt, the stockholders would be somewhat compensated by the sale of buildings and equipment. Today, companies expand production or survive slow times by borrowing money from banks or through the sale of bonds, rather than creating and selling new stock. They use company assets as collateral for those loans or bonds, which offers some protection to banks and bondholders and none to stockholders. If the company should fail, outstanding loans and bonds may be repaid out of the sale of equipment and property, if that equipment and property still have economic value.

If a company has assets worth ten million dollars, and one million shares of stock are owned by the public, that stock is protected to a price of ten dollars per share. But if the value of that stock rises to one hundred dollars per share when speculators and investors bid up its price without regard to its equity value, then ninety-percent of that stock's value is unprotected by company assets and profits. Its price has been inflated in a careless and economically dangerous manner. If bonds are sold to raise ten million dollars for operating capital, then the company's assets will be used to guarantee those bonds and there will be no equity value in that stock. Bankruptcy for such a company would result in a total loss for stockholders.

Not all players in these markets are long-term investors, or consumers of resources and commodities; many are strictly short-term speculators, betting on price changes. Speculators are people who bid to own, or offer to sell all sorts of stocks, bonds, and commodities, without holding stocks to receive dividends, or holding bonds to maturity, or taking possession of commodities to produce consumable products. Their gains come directly from other peoples' losses and their every effort is to try and read the markets, to be able to predict the actions of investors and consumers, and buy or sell on their own most favorable terms.

Speculation does not drive or strengthen the economy; it only feeds off the wealth of the economy. Speculators do not provide services and infrastructure. They have become institutionalized in our commercial real estate, bond, stock and commodity markets. Their actions in these markets conspire to create values for the pieces of paper that they buy and sell, which are different from the real market value of the assets represented by stocks, as well as the real market value of the commodities that speculators buy and sell, but never see. Political power is manipulated to regulate these investment markets for the benefit of speculators.

Speculation in stocks and other financial papers has caused the attention of the greedy to focus on the changing values of stocks, rather than on actual corporate earnings and dividends paid to investors. These changes in stock values are brought about more by the activity of speculators than by economic activities of production and consumption. The longevity of investment toward gain, from present and future profits of a company, is giving way to short term buying and selling, based solely on stock price. Speculation often drives many stock values way above or way below real current market values and earning capacity. These variations allow speculators to unduly influence trading in the markets, by encouraging investment for short-term gain through volatility, rather than long term gain via profits from the sales of goods and services. As the markets oscillate, speculators buy and sell to siphon off a portion of the flow of investment dollars coming at the markets. Whenever uncertainty arises, speculators (and investors turned into speculators by their brokers) drive the markets toward economic anarchy.

Many corporations are now more interested in how their stock price is viewed by speculators than by investors. When stock prices get somewhat above one hundred dollars per share, a round lot of one hundred shares would cost over ten thousand dollars. These higher prices tend to discourage speculators, who want to own lower price stocks, which are usually more volatile, allowing them to skim profits off that volatility. High stock prices therefore reduce the exchange activity of a stock (volatility); such that many corporations split their stock two-for-one or three-for-one, dropping the share price to one-half or one-third of its previous price, to encourage increased speculative buying of their stock.

"The market is always right," investment brokers, referring to the value of stocks, bonds, and commodities often quote this statement to customers; hoping to impress them with a belief that the markets reflect overall attitudes of investors and speculators. But for every buyer of stocks and commodities there is a seller of the same. Therefore, the markets are actually low as far as buyers are concerned, and high as far as sellers are concerned. Neither group thinks the markets are right. The fact is, the markets are always changing. The direction of change is determined when there is a surplus of buyers over sellers (rising market) or vice versa. The market is only right when and if it stagnates with no change.

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Taking Risks in Stock Market Trading

One general asserted truth is that profit is a goal for many of the men and women who populate this planet. Profit is the more desirable in the case of those who actually invest money because they want to extract even more financial benefits out of these particular investments. One popular way of giving a fertile employment to your money is making them circulate through stock market trading. Share owners can sell, hold their shares or even buy some more, if a series of rules (based either on well-established commonsense practices or on mere intuition) tell them the moment is just ripe for this or that strategy.

As a matter of fact, strategy is one of the terms often heard of in stock market trading. But can anyone talk about a strategy that never failed in this area? This is a frequently raised question, since it is widely acknowledged that the stock market can be tricky. The stock market may easily lead to a downfall in stock market trading. This process takes place, obviously, to the disadvantage of the investor. However, stock market trading doesn't always end with a loss. Should loss be a certainty, people would no longer invest in the stock market.

Whether we are talking about time-honored stock market trading - taking place within the 'real' here and now, on the floors of stock exchange rooms - or about online stock market trading one of the regularly advised strategies is to stick to the trend. Online stock market trading has acquired, in its turn, a value over the past ten years so it can be taken into consideration also. Every stock market undergoes certain (longer) intervals of development manifest in the evolution of stock price. Terms like bull market or bear market are recurrent in stock market trading reflecting either the continuously rising stock prices or the reverse situation. Both online stock market trading as well as its longer-established relative go hand in hand with the progress of the national economy. One example at hand is provided by the extent of a bullish market during the 1990s, determined by the robust national economy of the USA - a genuine initiator of investment confidence. When the situation changed, at the beginning of the year 2000, the market turned bearish and stock prices began falling. In both situations, the advised approach was not to go against the tendency of the market.

Circumstances have long proven it is wise to be consistent with the general trend. Indeed, there is 'fashion' within stock market trading as well. And if you don't want to be outdated - being outmoded in stock market trading may have damaging consequences - you go with the flow. Nevertheless, when someone trustworthy or when some reliable conditions offer you a 'hot' suggestion, you may want to act in its direction. Nonetheless, caution, shrewdness and wisdom must be in your proximal reach. This means that you are not to instantly trust any 'good old pal' who, out of good-will, provides you with a tip. You must be able to make your own research targeting the tip you received or else request the services of a stockbroker.

The latter may turn out to be a wise stratagem. Stockbrokers, even in online stock market trading, are generally certified and skilled authorities whom you can easily employ for you to take full advantage of your capital investing. Notice however that their expertise is not available free of charge. There is nothing 'on the house' in stock market trading. Basically, brokers get involved in stock market trading for you, making use of their fuller comprehension of the stock market status quo so as to trigger gains that will proceed to your pocket or to some further investment. Should the commission basis on which the relationship between you and your broker is built (as a general rule) not be appropriate for you, there are other possibilities as well. In online stock market trading it is less costly to supervise your own deals.

Additionally, in online stock market trading, the useful, instructive material you may need is obtainable day-and-night. Moreover, in case you take particular content in looking into your private stocks, you cannot find a richer source of information than the Internet. Online stock market trading allows you to research websites designed by investment companies so the client and the virtual investor can be aware of previous operations. By accessing reports and descriptions offered even by the companies themselves, one may even notice the excellent performance of key institutions. Even more, online stock market trading sites offer the investor support in the shape of online stock market trading tools, services and instruments that allow the investor to place an order beforehand and, should the client not be present at the moment when the market reaches the condition opted for by him or her, enter the order automatically.

Certainly, both online stock market trading and its 'next of kin' have their own advantages. Whereas online stock market trading provides more accessible assistance for dealing with stocks, what was the initial, fundamental stock market trading still goes on. Even if not following a time schedule as generous as that of online services, the traditional ways do not disappear. However, they both involve taking risks which is why prudence is the most often heard of strategy. In other words, it's better to "hold for a while the bird in the hand than quickly grab two in the bush".

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Stock Market Analysis

The return that a stock can provide is often predicted with the help of technical analysis. Stock market tradingtips are based on technical analysis of various parameters.

Stock market analysis is science of examining stock data and predicting their future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term - once their projected profit is reached they drop the stock.

The basis for stock market analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement - company performance, the general state of the economy, natural disasters - are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.

Stock market analysis is not intended for long-term investments because fundamental information concerning a company's potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements. Most stock tips and recommendations are based on stock analysis methods.

Investors can take advantage of these stock analysis methods to track both upswings and downswings in price by deciding whether to go long or short on their portfolios. Stop-loss orders limit losses in the event that the market does not move as expected.

There are many tools available for stock market technical analysis. Hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic stock analysis methods of 'support' and 'resistance'. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.

Stock Analysis Charts & Patterns

Stock market analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period - weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.

A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish - the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish - the stock opened near the high and closed near the low. These are only two of the more than 20 patterns that can be formed by candlesticks.

When glancing at charts the untrained eye may simply see random movements from one day to the next. Trained analysts, however, see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no one single reliable indicator, but these stock analysis methods when taken into consideration with others, investors can be quite successful in predicting price movements.

One of the most popular patterns is Cup and Handle. Prices start out relatively high then dip and come back up (the cup). They finally level out for a period (handle) before making a breakout - a sudden rise in price. Investors who buy on the handle can make good profits.

Another popular pattern is Head and Shoulders. This is formed by a peak (first shoulder) followed by a dip and then a higher peak (the head) followed again by a dip and a rise (the second shoulder). This is taken to be a bearish pattern with prices to fall substantially after the second shoulder.

Other Stock Market Analysis Methods

Moving Average - The most popular indicator is the moving average. This shows the average price over a period of time. For a 30 day moving average you add the closing prices for each of the 30 days and divide by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer time spans are less affected by daily price fluctuations. A moving average is plotted as a line on a graph of price changes. When prices fall below the moving average they have a tendency to keep on falling. Conversely, when prices rise above the moving average they tend to keep on rising.

Relative Strength Index (RSI) - This indicator compares the number of days a stock finishes up with the number of days it finishes down. It is calculated for a certain time span - usually between 9 and 15 days. The average number of up days is divided by the average number of down days. This number is added to one and the result is used to divide 100. This number is subtracted from 100. The RSI has a range between 0 and 100. A RSI of 70 or above can indicate a stock which is overbought and due for a fall in price. When the RSI falls below 30 the stock may be oversold and is a good time to buy. These numbers are not absolute - they can vary depending on whether the market is bullish or bearish. RSI charted over longer periods tend to show less extremes of movement. Looking at historical charts over a period of a year or so can give a good indicator of how a stock price moves in relation to its RSI.

Money Flow Index (MFI) - The RSI is calculated by following stock prices, but the Money Flow Index (MFI) takes into account the number of shares traded as well as the price. The range is from 0 to 100 and just like the RSI, an MFI of 70 is an indicator to sell and an MFI of 30 is an indicator to buy. Also like the RSI, when charted over longer periods of time the MFI can be more accurate as an indicator.

Bollinger Bands - This indicator is plotted as a grouping of 3 lines. The upper and lower lines are plotted according to market volatility. When the market is volatile the space between these lines widens and during times of less volatility the lines come closer together. The middle line is the simple moving average between the two outer lines (bands). As prices move closer to the lower band the stronger the indication is that the stock is oversold - the price should soon rise. As prices rise to the higher band the stock becomes more overbought meaning prices should fall. Bollinger bands are often used by investors to confirm other indicators. The wise technical analyst will always use a number of indicators before making a decision to trade a particular stock.

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