Eye on the Market: Learning the Charts II
By David O. England
PADUCAH, KY - Eye on the Market with David O. England: Learning the Charts II
Last week I introduced you to the basic of technical analysis (charting) to practice smarter buying and selling techniques. Today I will answer questions on technical analysis (TA) and what some traders are using to fine-tune their buying and selling decisions.
Why do I like technical analysis? When you learn the basics of charting, you can see what the big money/institutions are doing. What they SAY and what they are DOING (buying or selling) are two very different things. If the institutions do not buy, then the price of the security will not go up - with conviction. When they sell the price will go down.
Can you chart commodities? The answer yes. As long as you have three factors, time, price and volume many analytical tools are at our disposal. Today, I will introduce you to the chart for the Teucrium Corn ETF, symbol CORN, and will explain what chartists are looking for to help make their buying/selling decisions.
Does Technical Analysis work for Mutual Funds? First, while there are many styles of Mutual Funds there are only two types - Open-End and Closed-End. Open End Mutual Funds do not publish volume so many tools are not available like the green bars (CMF) that I use in my examples. I know this is confusing. Many Mutual Fund companies beat the drum calling for transparency yet they do not publish volume totals. Closed End Mutual Funds are traded at exchanges so their volume is available giving us a full slate of analytical tools. Many have not heard of Closed-End Mutual Funds because, unlike their Open-End cousins, they are “no load” so their sales commissions are zero compared to their high 5.75% load relatives.
Many traders use at least three to four indicators/tools to help make their decisions. I will explain two using the symbol CORN. To buy, traders were looking for the price to cross above the 30 SMA (blue line) in addition to having green bars (lower chart) that represent the money flowing into the stock. This is exactly what happened around June 20. See the stock price after both conditions were confirmed? The price ran from $38 to $51.
The trader’s sell signals were confirmed when the price dropped down through the 30 SMA (blue Line) and the bars turned red indicating the big money was selling. This is exactly what happened around the first week of September 1 when the money flowed out (red bars); the stock price dropped and has continued to drop. Do the math on the trade and you will see a very impressive 34% return. Once again, this is not a buy/sell recommendation but for educational purposes only.
Remember, there are other analytical tools including additional moving averages and trend lines etc. that traders will be analyzing before making their buying/selling decisions. The bottom line, when learning to interpret charts you are learning to see what the big money is doing and not just what they are saying.
If you would like to learn more on technical analysis, visit my website (www.thetraderseye.com) for information on my upcoming charting seminar in October.
In full disclosure I have not and do not own CORN ETF shares.
(Disclaimer) The information above is for educational purposes only and is not intended to be financial advice. Your decision to buy, sell, short or hold any stock or investment product is a direct result of your own decision, free will and research.