Technically speaking, trend is your friend

For an investment instrument as volatile as stocks, is it still possible to predict how stock prices will move at a given time?

 

Veteran market pundits say this is very much in play, stressing that there is science behind the controlled chaos that is the stock market.

 

During the TradeTalks Tutorial Series hosted by BDO Securities on the basics of technical analysis and understanding market trends titled "Trending Patterns", BDO Securities Chief Operating Officer, Bernhard Tsai, said market prices form patterns that create trends, and people almost always tend to react the same way when they see the patterns that had similarly formed in the past.

 

But a more viable game plan, however, is to identify the type of trends that are formed, and riding on them until such trend is reversed.

 

"Trends are confirmed by presence of volume. Volume has to be present so you'll know there's a demand for this stock," Tsai said.

 

“Human psychology plays a key role in the stock market," he added. "Whether it's positive or negative news, the market discounts everything. As long as it's already public information, it's already reflected in the (share) price."

 

How can novice market investors find a good entry in buying stocks using technical analysis? Tsai advised to buy at the breakout point. A breakout refers to the price of a stock when it moves above a resistance area. Breakouts indicate the potential for the share price to start trending in an upward direction.

 

"One of the common pitfalls for investors is they don't have a good exit strategy," Tsai said. "When things go right, we tend to be too greedy and don't know when to get out. Knowing how to identify patterns to buy is as good as knowing when to exit."

 

To know the tips on how to have a good exit strategy, identifying market trends, and appreciating the advantages of having a sound technical analysis, Tsai advised first-time investors to open an account with BDO Securities and take advantage of the different technical analysis-based resources such as the Technically Speaking commentaries and tutorial videos.