Technical Trading with Stock Market Data
There are two main schools of thought when talking about the buying and selling of stocks/shares – fundamental and technical.
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The fundamental school of thought deals largely with the overall business environment of the company/security. Considerations include (but are not limited to) the economy, interest rates, political climate, the industry the company is in, the financial health and even the leadership of the company. Buying on fundamentals are typically seen as investments (as opposed to trading). The fundamental investor believes that the stock market is inefficient and with due diligence he can profit from this inefficiency.
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Under the technical school of thought, however, one believes that the stock market is completely efficient. He believes all the factors that the fundamental school of thought covers are reflected in the price. This leads the technical analyst to analyze the only price and volume of a security. A technical analyst is often seen as a trader (as opposed to an investor).
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Most online trading platforms come with drag-and-drop tools for technical analysis. However, the beauty of technical analysis is that it’s not limited to only what your broker offers you.
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With some knowledge in programming and an Internet connection (and boredom/a desire to make money), one can easily run analysis on stock prices as seen below.
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As stocks are publicly traded, their prices are also publicly available to anybody with an Internet connection.
The example above uses traditional indicators that are based off historical prices. In other words, they’re called lagging indicators. Common lagging indicators used are moving averages (simple vs. exponential) that can vary by time range. The examples shown above are the simple moving average (50 day and 200 day) and the exponential moving average (50 day and 200 day).
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Other common indicators are the moving average convergence divergence (MACD), stochastic and Bollinger bands. Depending on one’s style of trading, one may employ a mix and match of different indicators. The ones above were the ones I chose.
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The underlying calculations and effectiveness of each indicator will not be discussed here, as they’re a whole other topic. Suffice to say that once simple trading indicators can be calculated using publicly available data, one can then begin to experiment with more artisanal ones.